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Don’t bury arbitration in your handbook–disclaimer could compromise agreement

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in Employment Law,Human Resources

Do you want employees to arbitrate employment-related claims? Then don’t bury the agreement in an employee handbook that includes a disclaimer stating that the handbook is not a contract.

Why? A court could conclude that the conflicting language means the arbitration agreement isn’t binding.

Recent case: When January went to work for a hotel, she underwent a typical orientation session.

She received a copy of a thick handbook and was asked to sign an acknowledgment that she had received it and promised to read the entire contents within a week.

The acknowledgment and several passages scattered throughout the handbook included language stating that the “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.”

Inside the handbook there was also an arbitration agreement. It specifically stated:

“I further agree and acknowledge that the company and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context. Both the company and I agree that any claim, dispute, and/or controversy that either I may have against the company . . . or the company may have against me . . . shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act.”

This is fairly typical arbitration language.

Later, January would testify that she hadn’t read the entire handbook before signing the acknowledgment and that she had signed it because she was told she had to.

After January was discharged, she sued, alleging among other claims that she had endured sexual harassment while working for the employer.

The employer asked the court to send the case to arbitration, arguing that January knew about the arbitration requirement.

The court didn’t see it that way. It reasoned that to be binding, the arbitration clause had to demonstrate clear mutual assent.

Since the handbook acknowledgment indicated that the employee understood that the handbook wasn’t a contract, the employer couldn’t also argue that part of it was a contract.

The court said January’s lawsuit could continue and tossed out the arbitration clause. (Esparza v. Sand and Sea, No. B268420, Court of Appeal of California, 2016)

Final note: Getting an arbitration clause to stick isn’t always easy, especially in California. But the effort can be worth it if it avoids just one drawn-out, expensive lawsuit.

On the other hand, having to first litigate whether the agreement is valid—and only then being able to litigate the underlying case—adds cost to the process without any clear benefit.

Your attorney may recommend that you separate out the arbitration agreement, which you want to be a binding contract, from the general employee handbook, which you don’t want to become a contract.

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