Employee Not Bound By Arbitration Clause In Employee Handbook

August 6, 2012 | Bulletin No. 1006398.1

A court of appeal recently held that an employee was not bound by an arbitration clause contained in a lengthy employee handbook because the clause was not called to the employee’s attention, the employee did not specifically agree to arbitrate or acknowledge the arbitration clause, the handbook stated it was not intended to create a contract, employer reserved the right to unilaterally amend the handbook, employer did not provide the employee with the specific arbitration rules, and the arbitration clause was unconscionable.  (Sparks v. Vista Del Mar Child and Family Services (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., July 30, 2012).

Facts

Vista Del Mar Child and Family Services (“Employer”) hired Perry Sparks (“Sparks”) as a temporary employee in January 2007 and a permanent employee in April 2007.  Sparks claims Employer terminated his employment in 2010 for pretextual reasons.  Perry brought a lawsuit for wrongful termination in which he asserted Employer terminated him after he complained that various employment practices violated state and federal law.  Employer filed a petition to compel arbitration and stay the action.  Employer claimed that an arbitration policy was prominently displayed in an employee handbook provided to Sparks and that Sparks agreed to abide by its term as evidenced by his signature acknowledging receipt of the handbook.

The arbitration clause begins on page 35 of the 2006 Handbook.  The clause provides, in part, that arbitration will be the exclusive forum for resolving all disputes between Employer and Sparks “arising out of claims for wrongful termination, discrimination, retaliation or harassment in violation of state or federal law, alleged violation of state or federal family and medical leave laws and other laws pertaining to employment, and for unpaid wages under state or federal law.”  Another provision of the Handbook provides that it “is not intended to create a contract of employment and does not in any way alter the at-will employment relationship between [Employer] and its Employees.”

Sparks signed a document titled “Acknowledgment of Receipt of Employee Handbook,” which states that the Handbook contains important information about Employer’s general personnel policies and Sparks’ privileges and obligations as an employee.  The document also states, “I understand that I am governed by the content of the Handbook and that [Employer] may change, rescind or add to any policies, benefits or practices described in the Handbook from time to time in its sole and absolute discretion, with or without prior notice.” 

Sparks claims Employer did not make him aware of the arbitration clause when he was hired.  Also, during his employment, although Sparks received a new handbook, he never acknowledged receipt in writing of the new handbook.  The new handbook contains an arbitration provision virtually identical to the 2006 Handbook but with the addition of the following language:  “Employees will be required to sign for receipt of handbook acknowledging inclusion of the arbitration policy stated in the handbook.”  The new arbitration provision also states, “Employee will be required to sign a full arbitration agreement that is signed by both the Employee and the Human Resources Director or designee.” 

The trial court denied Employer’s petition to compel arbitration.  The court concluded there was no agreement to arbitrate because the mere acknowledgment of the 2006 Handbook was insufficient to create an enforceable agreement to arbitrate between the parties.

Decision

The court of appeal affirmed the decision of the trial court.  Arbitration is a contractual matter and a court will not compel a party to arbitrate if there is not a valid agreement to arbitrate.  Here, the court of appeal concluded there was no agreement to arbitrate because the arbitration clause in the 2006 Handbook is unenforceable.

Prior case law established that an acknowledgment form signed by an employee does not constitute a valid wavier of an employee’s right to litigate employment disputes.  Here, the arbitration clause is not highlighted in the 2006 Handbook and there is no place in the document to acknowledge the arbitration clause.  Although the later handbook corrects this deficiency by providing that an employee has to sign the arbitration provision, Sparks did not acknowledge in writing the receipt of the new handbook.  Because Employer failed to point out or call attention to the requirement in the acknowledgment document that disputes must be arbitrated, Sparks should not be bound by the provision in the 2006 Handbook that purports to require him to arbitrate his dispute. 

The Handbook did not constitute a contract and there was no agreement to arbitrate.  The court found that in order to conclude that an employee has relinquished his or her right to bring a lawsuit for an employment-related claim, “there must be more than a boilerplate arbitration clause buried in a lengthy employee handbook given to new employees.”  The court concluded that “[a]t 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 the commencement of employment.”  Sparks’ signature on a form acknowledging receipt of the handbook does not qualify as an agreement to be bound by the arbitration clause.

Also, the Handbook states that it is not intended to create a contract.  Employer cannot have it both ways by claiming the Handbook does not create a contract and by also claiming the Handbook binds the employee to arbitration.  Furthermore, the agreement to arbitrate is illusory because Employer reserved the right to unilaterally modify the Handbook.  Also, Employer failed to provide Sparks with a copy of the arbitration rules to which he was supposed to be bound.  The arbitration clause is also substantively unconscionable because it requires Sparks to relinquish his administrative and judicial rights under state and federal statutes but the clause provides no express provision for discovery rights.  The American Arbitration Association rules were not provided to Sparks and those rules give an arbitrator the discretion to deny any discovery.  Therefore, the provision for discovery is insufficient. 

For the foregoing reasons, the court of appeal concluded Sparks is not bound by the arbitration clause in the 2006 Handbook.  Accordingly, the court of appeal upheld the trial court’s decision to deny Employer’s petition to compel arbitration.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Bruce A. Scheidt, Laura Izon Powell or David W. Tyra | 916.321.4500