Labor & Employment Law Daily Employer rescinded conditional job offer, so its arbitration clause not supported by consideration
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Tuesday, November 24, 2020

Employer rescinded conditional job offer, so its arbitration clause not supported by consideration

By Thomas K. Lauletta, J.D.

A conditional offer of employment was not sufficient consideration to make an arbitration clause enforceable where the prospective employer was not bound by its terms and the plaintiff was never hired.

Denying Vivint Solar Developer’s motion to compel arbitration, a federal court in Pennsylvania ruled that an arbitration clause contained in a conditional employment offer was not enforceable because its application was totally optional on the part of the prospective employer. Further, the plaintiff’s receipt of the conditional employment offer and unpaid pre-employment training was not consideration supporting enforcement of the arbitration clause because he never received employment in exchange for agreeing to the arbitration clause (Lomax v. Vivint Solar Developer, LLC, November 18, 2020, Younge, J.).

Rescinded. The plaintiff signed Vivint Solar’s Direct Seller Agreement and began training for the position of sales consultant with the company. An arbitration clause was contained in this agreement. After receiving a background check that had what it deemed to be an unsatisfactory finding, the company rescinded its conditional employment offer to him. The plaintiff at no time received financial compensation from the Vivint Solar. Upon the rescission of the employment offer, the plaintiff sued for violations of criminal history reporting standards applicable under Pennsylvania and Philadelphia law.

The company moved to compel arbitration under the employment agreement. Applying Pennsylvania law, the court noted that arbitration will be compelled only if a valid agreement to arbitrate exists and if the particular dispute falls within the scope of the agreement. The court refused to compel arbitration because the company failed to establish that it offered the plaintiff valuable consideration for his offer to arbitrate claims.

Vivint Solar’s promise to arbitrate was illusory. The court noted that under Pennsylvania law, if an employer is free to exercise or not exercise an arbitration agreement, its decision to arbitrate is entirely optional and the agreement to arbitrate will be deemed to be illusory. The court held that the arbitration clause in the direct seller agreement was illusory because the clause could be enforced against the company only upon the happening of a condition precedent, the receipt of a satisfactory background check with respect to the prospective employee. Accordingly, the court refused to compel arbitration on this ground, concluding that a valid arbitration agreement did not exist between the parties.

Conditional employment offer as consideration. The company argued that consideration was present in its employment offer to the plaintiff. The court rejected this argument, holding that Vivint Solar’s conditional offer of employment and its unpaid, pre-employment job training were insufficient consideration to support the enforcement of the arbitration clause. The court saw as critical that because the company had rescinded its conditional employment offer upon receipt of the unfavorable background check, the plaintiff was never hired as contemplated in the direct seller agreement. Accordingly, the plaintiff had not received employment in consideration for his agreement to arbitrate claims.

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