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A Colorado District Court held that an arbitration clause is illusory where the arbitration agreement contained within the employment agreement could be unilaterally modified by the employer at any time.
In Hirschi v. Newcastle Properties, Inc., No. 06CV01424 PSFMJW, 2006 WL 2927493 (D. Colo. Oct 12, 2006), Hirschi brought charges against her employer, Newcastle Properties, Inc. (Newcastle) in state court. Newcastle moved to compel arbitration.
The arbitration agreement alleged by Newcastle was contained in a disclaimer form referencing an employee handbook. Specific language in the disclaimer indicated that nothing in the employee handbook was legally binding. Additionally, the first page of the handbook indicated that anything in it could be changed by Newcastle at any time. Newcastle contended that the arbitration agreement was separate from the employee handbook and thus, the disclaimer was not applicable.
Analogizing to Dumais v. American Golf Corp., 299 F.3d 1216, 1219 (10th Cir. 2002), the Court reasoned that Newcastle’s reservation of the right to alter any term or condition of employment could also be applied to the arbitration agreement. Thus, the arbitration clause was illusory because the arbitration agreement could be unilaterally modified by Newcastle at any time.
The Court did not look to other cases which have upheld such arbitration agreements where unilateral change was allowed, but built in limitations saved the agreement. For example, in Brooks v. The Finish Line, No. 3:05-0715, 2006 WL 1129376 (M.D.Tenn. Apr. 26, 2006), the court found that the ability to make changes “was not unlimited and could not be used to unilaterally change its obligations in order to defeat claims.”
Further, in Lopez v. H & R Block Financial Advisors, Inc., 2006 WL 615996 (N.D. Tex. Mar. 10, 2006), the Court found that, even when an employer reserved the right to modify the “rules and regulations of arbitration, [the employer]... [was] not entitled to revise, amend or terminate the agreement to arbitrate itself...[and] any changes [that were made,] were still subject to the rules and regulations of the NYSE, NASD, or an equivalent arbitration forum,” the arbitration agreement was not illusory.
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