- Front Page
- Biz Tools
A Texas ruling could impact franchise arbitration clauses.
John Carey was an employee of 24 Hour Fitness and agreed to settle any disputes by arbitration.
Subsequently he brought suit, alleging violations of federal labor law. The company pointed to the arbitration clause, but the Fifth Circuit ruled that the arbitration clause set forth in the employee handbook was not enforceable because the handbook (including the arbitration clause) could be changed at the discretion of the company:
where one party to an arbitration agreement seeks to invoke arbitration to settle a dispute, if the other party can suddenly change the terms of the agreement to avoid arbitration, then the agreement was illusory from the outset.
The court cited a distributorship case (Morrison v Amway Corp) and while that decision and Carey v 24 Hour Fitness may not be on point for a properly-drafted franchise agreement and properly-drafted franchise Operations Manuals, the new ruling does indicate a growing trend of jurists who seek to avoid arbitration clauses (at least when the aggrieved party is an employee).
John Carey v. 24 Hour Fitness USA Inc, 5th Circuit Court of Appeals, Jan 25 2012
|Carey v 24 Hour Fitness OPINION 25Jan2012.pdf||108.35 KB|