Illinois Supreme Court Rejects "Knowing & Voluntary" Standard for Employment Arbitration

The Illinois Supreme Court yesterday ruled that an employee's "knowing and voluntary" consent is not a precondition to enforcement of an employment arbitration agreement.  The case is Melena v. Anheuser-Busch, Inc., No. 99421 (Ill. March 23, 2006).

The plaintiff had signed an arbitration agreement that Anheuser-Busch had given her as a condition of continued employment.  When she sued for workers' compensation retaliation, Anheuser-Busch moved to compel arbitration.  The lower courts denied the motion, ruling that  employment arbitration agreements were not enforceable unless employees entered into them knowingly and voluntarily.  The appellate court noted "serious reservations" about whether an arbitration agreement, offered as a condition of employment, "is ever voluntary," and deemed "illusory" whatever choice the plaintiff had in arbitration.

The Illinois Supreme Court reversed.  Quoting Steve Ware (left), the Court held that under "ordinary, plain-vanilla contract law", the plaintiff had consented by signing the arbitration agreement, regardless of whether she had read or understood it.  The Court reasoned that imposing a "knowing and voluntary" standard would conflict with the U.S. Supreme Court's oft-stated pronouncement that state statutes or court decisions cannot hold arbitration agreements to an enforceability standard any higher than standards applied to contracts generally.  The Court also found that the Seventh Amendment was not implicted because that Amendment only confers a right to trial by jury "once it is determined that the litigation should proceed before a court," and here the plaintiff had agreed to arbitration.

A dissent argued that Anheuser-Bush's arbitration program was unenforceable because it would not have effectively vindicated the plaintiff's statutory rights, because the plaintiff's discharge took her outside the scope of the arbitration agreement which covered "all employees", and because the plaintiff had not knowingly and voluntarily consented to arbitration.  The dissent cited David Schwartz (right) for the latter proposition.

The federal circuit courts and state courts are split on whether to impose a "knowing and voluntary" standard.  The standard is usually attributed to the 9th Circuit case of Prudential v. Lai.  That court, however, adopted only a "knowing" standard, but cited to legislative history dicussing a "knowing and voluntary" standard.  For an up-to-date discussion of the cases going both ways, see Contract Formation Issues in Employment Arbitration, 44 Brandeis L.J. 415, 449-50 (2006).

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