CA Court Finds Arbitration Agreement with Modification Provisions to be Illusory

The California Court of Appeals recently found an employer's arbitration agreement to be "illusory" because it contained a modification provision which stated that the employer had the right to amend, modify, or revoke the arbitration contract on 30 days' written notice, and at the end of the 30-day period, a contract change applies to any claim that has not been filed with the American Arbitration Association.

Specifically, the Court held that an arbitration contract which contains a modification provision is illusory if an amendment, midfication, or revocation applies to claims that have accrued or are known to the employer. However, if a modification provision contains restrictions so that it exempts all claims, accrued or known, from a contract change, the Court held that this would not be deemed illusory.   

The Court noted that the reason it was illusory was because an employer could amend the contract in anticipation of a specific claim, altering the arbitration process to the employee's detriment and making it more likely the employer would prevail in the end. Further, the Court reasoned that it was illusory because the employer could terminate the arbitration agreement altogether, if the Company deemed that to be more beneficial.

Arbitration agreements often come under careful scrutiny here in California, particularly in the wake of cases like AT&T v. Concepcion and Mayers v. Volt Management.