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An employer is bound by its arbitration agreement, even when it can unilaterally modify or revoke the agreement, a federal court in Michigan held.
In Pellow v. Daimler Chrysler Services North America, LLC, No. 05-73815, 2006 WL 2540947 (E.D. Mich. Aug. 31, 2006), Pellow challenged a dispute resolution provision is his employment contract with Chrysler after he was terminated from his position. Pellow argued that Chrysler did not intend to be bound because the arbitration agreement allowed Chrysler to modify or revoke terms of the employment contract.
The Court disagreed with Pellow and compelled arbitration of the dispute. Although a Michigan Supreme Court decision held an arbitration clause with a similar provision allowing unilateral modification of terms to be unenforceable, Heurtebise v. Reliable Bus. Computers, 550 N.W.2d 243 (Mich. 1996), the Pellow Court noted that the previous holding was based on the fact that allowing unilateral modification conflicted with the Michigan Arbitration Act. In this case, the Federal Arbitration Act (FAA) applied.
Additionally, the Court’s decision in Heurtebise had subsequently been distinguished because the contract in Heurtebise contained language clearly stating that the employer did not intend to be bound. See Rushton v. Meijer, Inc., 570 N.W.2d 271 (Mich.Ct.App. 1997). Since Pellow’s contract with Chrysler contained no such language, the Court held that Chrysler intended to be bound by the arbitration provision within the contract.
Pellow also argued that he should not be compelled to arbitrate his claims because certain portions of the arbitration clause prevented him from effectively vindicating his rights. However, the Court noted the parties’ agreement contained a severability provision; therefore, any invalid provisions could be severed from the arbitration agreement.
The Court then proceeded to compel arbitration, but severed provisions that prevented the arbitrator from awarding front pay and deciding claims related to employee benefits because both provisions forced Pellow to potentially forego a substantive remedy. The Court also severed a clause allowing Chrysler to reject an arbitration award of reinstatement and a clause deducting unemployment payments from an award of backpay.
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