When an employee is initially hired, frequently, an employer will require that the employee sign an agreement to arbitrate any “claims or disputes arising” out of the employment relationship.  In a recent decision, the United States District Court for the Eastern District of Pennsylvania held that an arbitration agreement entered into well after the employee commenced her employment is, likewise, enforceable. 

In Marotta v. Toll Brothers, Inc., the plaintiff was asked to sign an arbitration agreement 14 years after first having started employment with Toll Brothers.  According to the plaintiff, she signed the arbitration agreement because she was told that if she did not, she would be terminated.  Over 6 years after signing the arbitration agreement, the plaintiff was terminated from her job.  Subsequently, she filed suit against Toll Brothers in the United States District Court for the Eastern District of Pennsylvania, alleging violations of Title VII, the Equal Pay Act and New Jersey’s Law Against Discrimination.  In response, Toll Brothers filed a motion to compel arbitration and to dismiss the complaint, arguing that the plaintiff was bound by the arbitration agreement she had executed.  The plaintiff countered that the arbitration agreement was invalid as lacking in consideration as she had already been employed when she signed it.   She also argued that she had executed the arbitration agreement under economic duress as she had been threatened with the loss of her job if she did not sign it.

The United States District Court for the Eastern District of Pennsylvania ruled in Toll Brothers’ favor, upholding the legality of the arbitration agreement.  Analyzing the agreement under the law of contracts, the federal district court found that the arbitration agreement contained the requirements for a valid agreement.  The federal district court dismissed the plaintiff’s claims that the arbitration agreement was not supported by valid consideration, holding that sufficient consideration exists for an arbitration agreement when both parties to the contract agree to be legally bound by it.  Furthermore, the federal district court noted that the plaintiff had received additional consideration in the form of 3 additional vacation days for signing the agreement.  In passing, the federal district court also noted that courts also consistently find continued employment to be adequate consideration for arbitration agreements. 

Significantly, the federal district court also rejected the plaintiff’s claim that she was under “economic duress” when she signed the agreement, finding that fear of the loss of one’s job is insufficient to amount to economic duress when "the situation that caused [her] to fear the loss of [her] job -- the need to support [her family] -- was of [her] own making," and not that of Toll Brothers. 

The federal district court also dismissed the plaintiff’s argument that the arbitration agreement was “unconscionable” because Toll Brothers had superior bargaining power and the arbitration agreement unreasonably favored Toll Brothers.  The federal district court noted that inequality in bargaining power is itself insufficient for finding an arbitration agreement unenforceable in the employment context and the agreement did not unreasonably favor Toll Brothers as any dispute had to be decided by a neutral arbitrator. 

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