The Franchise Memorandum

A federal court in Illinois found that an arbitration agreement in a franchisor’s online employment application is valid and enforceable, and held that the arbitrator should decide whether the arbitration agreement allows class arbitration. Chatman v. Pizza Hut, Inc., 2013 U.S. Dist. LEXIS 73426 (N.D. Ill. May 23, 2013). The case was brought as a class action in state court by a delivery driver on behalf of himself and all other similarly situated employees. The plaintiff asserted claims against Pizza Hut and the franchisee under the Illinois Wage Payment and Collection Act and the Illinois Minimum Wage Law. Pizza Hut removed the case to federal court and filed a motion to compel arbitration based upon the arbitration provision in the online job application the employee had completed and submitted. Pizza Hut also sought an order requiring that the arbitration proceed on an individual basis rather than as a class action.

The employee-plaintiff argued that there was no valid agreement to arbitrate because the online application lacked consideration. Pizza Hut countered that its promise to consider the plaintiff for employment, its obligation to submit to binding arbitration, and its employment of the plaintiff constituted sufficient consideration. The court agreed and granted Pizza Hut’s motion to compel arbitration, but denied its motion to order the arbitrator to hold individual arbitrations. Instead, after reviewing the existing case law, the court determined that the issue of whether to arbitrate as a class or on an individual basis was within the arbitrator’s discretion to decide.