Unilateral-Modification Provisions in Employment Arbitration Agreements

Abstract

Unilateral-modification clauses give one party the unfettered right to amend or reject the underlying contract, often with neither notice to nor consent from the other party. State and federal courts are divided on the issue of whether employment arbitration agreements subject to such clauses are enforceable (and the courts holding the arbitration agreements are unenforceable are divided on which of several contract law doctrines apply). The majority of courts refuse to compel arbitration when the employer's unilateral-modification rights create a lack of consideration, a non-mutual agreement, an illusory promise to arbitrate, or an unconscionable agreement. A minority of courts find that the promise of continued employment is adequate consideration and that arbitration agreements containing unilateral-modification clauses are enforceable.

This article argues that an employer's promise of continued at-will employment is illusory and therefore, by itself does not supply consideration for an employee's promise to arbitrate. The article also argues that under existing contract law doctrines, arbitration agreements subject to unrestricted unilateral-modification provisions should not be enforceable. However, courts should permit employers to retain the ability to unilaterally modify arbitration agreements so long as the agreements provide employees with (1) adequate notice of changes, (2) sufficient consideration for the promise to arbitrate, and (3) conscionable arbitration terms. Courts can overlay this three-step framework onto existing contract doctrines to fairly and consistently analyze the enforceability of unilateral-modification clauses in employment arbitration agreements.

Keywords: unilateral, modification, arbitration, notice, consideration, unconscionable

JEL Classification: K31, K41