Arbitration Provision in Employee Handbook Is Not an Enforceable Contract

Arbitration Agreements have been upheld, thrown out, and upheld. Back and forth and here we go again! A California state court decision issued another unfavorable decision that reminds California employers that arbitration policies set forth in employee handbooks generally do not amount to an enforceable agreement to arbitrate claims. In Sparks v. Vista Del Mar Child & Family Services, the employer had an employee handbook containing, among many other policies, a policy requiring arbitration of employment disputes. The handbook (like most) elsewhere included language making clear that the handbook was not an express or implied contract. Employees were required to sign a form acknowledgement indicating they had received the handbook. However, the acknowledgement did not specifically allude to the arbitration policy or separately include any agreement to arbitrate. A former employee filed an employment-related claim against the employer, and the employer moved to compel arbitration, arguing that the employee had agreed to arbitrate the dispute by virtue of his signed acknowledgement of receipt of the employee handbook. The court refused to compel arbitration, holding that there was no evidence that the employee had agreed to arbitrate. The court reasoned that the arbitration provision was buried in a lengthy employee handbook, the handbook itself stated that it was not intended to create a contract, the acknowledgement form made no specific mention of arbitration, and the handbook also stated that the employer could modify the policies therein at any time, making any agreement to arbitrate illusory. The court also noted that even if there was a valid agreement to arbitrate, it would be still be unenforceable due to unconscionability because the arbitration policy did not provide for adequate discovery and incorporated AAA arbitration rules that were not included nor provided to the employees.

The Sparks case is a good reminder that to be enforceable, employment arbitration agreements ideally should be free-standing agreements signed by employees. They may be included on acknowledgement forms or in broader agreements, but the arbitration provision should be a prominent provision, making the employee’s knowledge of the provision and agreement thereto unmistakable.