Floss v. Ryan's Family Steak Houses, Inc.

211 F.3d 306 (6th Cir. 2000)

What's Going On?

Consolidated appeals of cases that held differently on the issue of the validity of an arbitration agreement between Plaintiffs (employees) and Defendant (employer).

Who's Who?

Plaintiffs     :

Sharon Floss – former employee of Defendant;
Kyle Daniels – former employee of Defendant.

Defendant :

Ryan's Family Steak Houses, Inc. – former employer of Plaintiffs.

Facts:

Plaintiffs Sharon Floss and Kyle Daniels, brought suits in different federal courts against their former employer, Defendant Ryan's Family Steak Houses, under the Americans with Disabilities Act. While applying for employment with Defendant, however, Plaintiffs had signed an arbitration agreement with a third-party arbitration services provider, Employment Dispute Services, Inc. (EDSI). In the agreement, EDSI agreed to provide an arbitration forum in exchange for Plaintiff's agreement to submit all employment-related disputes to arbitration with EDSI. The agreement gave EDSI complete discretion over the arbitration process, and the right to alter the applicable rules and procedures without obligation to notify. The agreement set forth a fee structure generally requiring Plaintiffs to pay one-half of the arbitrators' fees. The district court in Plaintiff Floss' suit held that the arbitration agreement was valid, and Plaintiff Floss appeals. In Plaintiff Daniels' suit, the district court held the agreement to be invalid, and Defendant appeals.

Issue:

Is an arbitration agreement valid where a party to the agreement reserves the right to alter the rules and procedures of the arbitration process without obligation to notify?

Decision:

No. Although this court has concerns with both the fee structure and potential bias of EDSI's arbitral forum, those concerns do not need to be addressed because Plaintiffs are not contractually obligated to submit their disputes to arbitration with EDSI. Consideration is an essential element of every contract. Absent a mutuality of obligation, a contract based on reciprocal promises lacks consideration. In the purported arbitration agreement, EDSI promises to provide an arbitral forum as consideration for Plaintiffs' promises to submit all employment-related disputes to arbitration with EDSI. This promise, however, is fatally indefinite. Because EDSI retains complete discretion over the arbitration process and the applicable rules and procedures, it has effectively reserved the right to alter the nature of its performance. An employer may enter into an agreement with employees requiring the arbitration of all employment-related disputes; however, an employer may not do so in a manner that leaves employees with no consideration for their promise to submit their disputes to arbitration. In this case, the arbitration agreement is not enforceable because Plaintiffs received no consideration for their promise to arbitrate their disputes.

Basic Rule:

An arbitration agreement is not binding upon parties that have received no consideration for their promise to submit their disputes to arbitration.

Terms:

Arbitration :

A method of dispute resolution by which disputing parties agree to be bound by the decision of one or more neutral third parties.

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