It's OK for arbitration agreement to allow employer to unilaterally modify it

Covenant of good faith and fair dealing saves the day. In Peng v. First Republic Bank (California Ct App 09/26/2013) employee Peng signed an arbitration agreement that allowed the employer to make unilateral changes in that agreement.

A lot of courts have trashed such agreements either on the ground of unconscionability or on the ground that consideration was lacking (or illusory, as they say). Not so in this case.

The California Court of Appeal points out that when one party to a contract has the right to vary its performance that right is circumscribed by a duty to exercise it in good faith and in accordance with fair dealings. The implied covenant of good faith also prevents an employer from modifying an arbitration agreement once a claim has accrued or become known to it. Result: the contract is not illusory, and the one-sided nature of the contract does not shock the court's conscience. Pretty ordinary contract analysis.

By the way, Peng did not assert that the employer actually did modify the agreement. All the more reason to uphold it.

The court also was unimpressed by Peng's argument that the agreement incorporated by reference the AAA arbitration rules, and the employer did not give her an actual copy. Again, pretty ordinary contract analysis.

Why even write about this case if it is applying ordinary contract analysis? Folks, if you haven't noticed, many courts -- especially in California -- are actually hostile towards arbitration clauses that show up in employment agreements. Especially if the employment agreements are adhesion contracts, which they almost always are. But the Federal Arbitration Act says such agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." If that means anything, it means courts should use what I've called "pretty ordinary contract analysis" rather than cooking up special rules for these cases.