The question presented to the Court in this case is whether an arbitration provision in an employee handbook is legally enforceable.
In the case before the Court, the employer had an employee handbook, as most employers have these days. Also very common, the handbook had a welcome letter as the first page of the handbook and the letter stated, “[T]his handbook is not intended to be a contract (express or implied), nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees.”
The employee handbook also contained an arbitration provision.
As is also a commonly accepted practice, the employee was required to signed a form acknowledging receipt of the handbook. The acknowledgment form expressly recognized that the employee had not read the handbook at the time she signed the form.
In addition, the receipt mentioned the arbitration provision as one of the “policies, practices, and procedures” of the company. However, the acknowledgment form did not require the employee to expressly state that she agreed to the arbitration provision.
The employee challenged the validity of the arbitration provision as contained in the employee handbook. The Court stated that the arbitration provision in the employee handbook did not create an enforceable agreement to arbitrate. The primary reason for the holding was the arbitration agreement was incorporated into the handbook which expressly stated it was NOT a contract; whereas the arbitration agreement was a contract.
The lesson learned from this decision is that an arbitration agreement should be a stand-alone document enforceable as a contract between the employer and employee (assuming all other provisions are included for an enforceable agreement) and not simply mentioned an employee handbook as a “policy”.
What Do I Do Now?
- Determine whether implementation of an arbitration agreement as an alternative dispute resolution method is right for your business as there are considerable costs for an employer associated with the arbitration of an employment related dispute;
- Ensure that your arbitration agreement complies with the State and Federal requirements to find an arbitration agreement valid and enforceable;
- Present the stand-alone arbitration agreement as a document separate from an employee handbook; or
- If the arbitration agreement is included in an employee handbook, attach it as an appendix and have the employee sign it separately;
- Be aware of the conflict with the standard language in most employee handbooks that they are not “a contract of employment” language meant to affirm at-will employment which language can be used to challenge the arbitration agreement’s enforceability.