Unilateral Right To Alter Or Terminate Agreement Does Not Necessarily Make It “Illusory”
Employee Casas sued his employer CarMax, alleging wrongful termination and related causes, prompting CarMax to move to compel arbitration. However, the trial court denied CarMax’s motion to compel, buying its argument that the arbitration agreement was “illusory” because the Dispute Resolution Rules and Procedures (DRRP) in play gave CarMax the right to alter or terminate the agreement and the DRRP. CarMax appealed. Casas v. CarMax Auto Superstores California LLC, Case No. B246392 (2nd Dist. Div. 2 Feb. 26, 2014) (Johnson, Chaney, Miller) (unpublished).
The Court of Appeal disagreed on this one, finding that the agreement was not illusory, because like all contracts, it contained an implied covenant of good faith and fair dealing. This conclusion required that the Court distinguish Sparks v. Vista Del Mar Child & Family Services, 207 Cal.App.4th 1511 (2012), a case in which an employee handbook contained a dispute resolution policy, and also provided that the handbook could be “amended, revised and/or modified by [the employer] at any time without notice.” In Casas, however, the arbitration agreement was not hidden in a handbook, and there was a procedure including notice, by which the agreement could be amended. Additionally, another provision made it explicit that any rules in conflict with “a mandatory provision of applicable law” would be automatically to comply with the mandatory provision.
Even though Casas is unpublished, some simple suggestions flow from the case: make sure the arbitration provision is not hidden, and that it is acknowledged; provide a procedure including notice for changes in the employment agreement; provide that the dispute resolution provisions must be in compliance with a mandatory provision of applicable law, or else applicable law takes precedence; and, include a severability provision. In general, drafting that enhances fairness of an arbitration provision enhances enforceability too.