United States Court of Appeals Invalidates 24 Hour Fitness Arbitration Agreement

On January 25, 2012 the 5th Circuit Court of Appeals published its opinion in Carey v. 24 Hour Fitness (5th Cir. No. 10-20845).  The court held that 24 Hour Fitness’s 2005 Arbitration Agreement is illusory and unenforceable.  Carey, a former 24 Hour Fitness employee, argued that the arbitration agreement was unenforceable because 24 Hour Fitness retained the right to unilaterally amend the agreement.  The Court of Appeal agreed with the employee, holding that the arbitration agreement was illusory.  It therefore denied 24 Hour Fitness’s motion to stay and compel arbitration.

The Court cited the unfairness of holding an employee to an agreement the employer could unilaterailly enforce, stating

“[t]he fundamental concern driving this line of case law is the unfairness of a situation where two parties enter into an agreement that ostensibly binds them both, but where one party can escape its obligations under the agreement by modifying it. Requiring notice alone does not fully address this concern: if an employer provided for 10-day notice of any change to its arbitration provision, this could still arguably allow it to avoid its promise to arbitrate as to claims that were already in progress, unless there were some provision preventing changes from applying to in-progress disputes.”

The case may have important implications in that 24 Hour Fitness has filed lawsuits across the country seeking to compel arbitration of wage claims brought by hundreds of employees, including claims under the 2005 agreement. To see the opinion, click here

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