Appeals Court Tosses Out Vague Arbitration Contract

October 26, 2001 ( - The US Court of Appeals for the Seventh Circuit ruled an arbitration agreement that employees of Ryan's Family Steakhouse were made to sign unenforceable, calling it "hopelessly vague."

In Penn v. Ryan’s Family Steak Houses Inc, the judges affirmed a district court’s denial of Ryan’s motion to compel arbitration of Penn’s claims, finding that in terms of the contract between Craig Penn and Employment Dispute Services Inc (EDS), the latter “could fulfill its promise by providing Penn and Ryan’s with a coin toss.”

Case History

Penn was employed by Ryan’s from 1996 until he was fired in1998. He then filed a suit under the Americans with Disabilities Act (ADA) charging that Ryan’s maintained a hostile work environment and fired him for complaining about harassment.

As a new hire, he was required to sign a contract with EDS to have the group provide an arbitration forum for all employment-related disputes with Ryan’s.


According to court papers, in terms of the contract, EDS only commits itself to provide:

  • an arbitration forum
  • Rules and Procedures
  • a hearing and decision based on any claim or dispute.

It also placed strict limitations on discovery and depositions and gave power to EDS to amend or modify the rules.

The court ruled that the contract lacked mutuality of obligation and contained only an “unascertainable, illusory promise” by EDS while placing significant obligations on the employee.

In addition, the appeals court said not only did the contract between EDS and Penn contain no mutuality, it also could not be found by examining other documents, such as the job application or the contract between EDS and Ryan’s.