Arbitration Agreement in Handbook
By Christopher W. Olmsted
A California appellate court recently determined that an arbitration clause buried in the employee handbook was not an enforceable contract, opening the way to a jury trial. The case, titled Sparks v. Vista Del Mar Child and Family Services, should prompt employers to review and possibly change handbook arbitration clauses.
Employee Wants His Day In Court
Perry Sparks worked for Vista Del Mar Child Family Services until his termination in 2010. Believing his termination to be illegal, he sued alleging retaliation for complaining about wage and hour practices.
The company filed a motion to stay the litigation and compel Mr. Sparks to participate in binding arbitration. The company pointed to a provision in the employee handbook. This employee had signed an acknowledgment of receipt of the handbook when he was hired three years before.
A written agreement to arbitrate is enforceable. However, as between employers and employees, the “agreement” must satisfy certain conditions which state and federal courts have imposed over a number of years.
Handbook Arbitration Clause Not Enforceable
The court reviewed the arbitration clause in the company handbook and determined that it was not an enforceable agreement.
Not obvious. The arbitration clause was one of many clauses in the handbook, not prominently distinguished from other clauses.
Not a contract. The court concluded that the handbook was “informational” and not a contract. The handbook’s introductory statement declared that the handbook was “a general summary of the agency’s personnel policies,” designed to acquaint the employee with personnel policies. It stated that “this Handbook is not intended to create a contract of employment and does not in any way alter the at-will employment relationship.”
Not acknowledged. The acknowledgment of receipt for the handbook made no specific reference to the arbitration clause. In order to enforce an arbitration agreement, the employee must be shown to have entered into a “knowing agreement.” The acknowledgment form was silent about arbitration and therefore an employee may be ignorant of waiving his or her rights. Quoting a precedent case, the court noted: “Merely agreeing to be ‘governed by the Contents’ of the Handbook that contains ‘important information’ about defendant's ‘general personnel policies and on plaintiff's privileges and obligations’--all of which could be unilaterally changed--did not constitute a contract and does not bind plaintiff to arbitration.”
Other courts said so. This court cited a number of prior court decisions which similarly have held that arbitration clauses buried in an employee handbook are not enforceable contracts.
The court wrote: “To support a conclusion that an employee has relinquished his or her right to assert an employment-related claim in court, there must be more than a boilerplate arbitration clause buried in a lengthy employee handbook given to new employees. At a minimum, there should be a specific reference to the duty to arbitrate employment-related disputes in the acknowledgment of receipt form signed by the employee at commencement of employment. The increasing phenomenon of depriving employees of the right to a judicial forum should not be enlarged by imposing upon employees an obligation to arbitrate based on one obscure clause in a large employee handbook distributed to new employees for informational purposes.
Not all companies decide to require employees to submit legal claims to arbitration rather than court. But for those companies who do wish to require arbitration, the better practice is to present stand alone arbitration contracts to employees, rather than including arbitration provisions in a company handbook.
If a company includes an arbitration clause in its handbook, at a minimum the acknowledgment form should very clearly state that the employee is agreeing to binding arbitration of all employment claims. Additionally, the arbitration provision should be highlighted in such a way that it is obvious.
Either way, an employment law attorney's help drafting the document is highly recommended.