Arbitration for Employees

While controversy about predispute arbitration provisions has centered on consumer agreements, be careful if you use predispute arbitration agreements for personnel matters. Employees frequently challenge the enforcement of those provisions, claiming they did not agree to arbitration. A business must be clear it is entering an arbitration agreement with an employee, and a recent case from the United States Court of Appeals for the Fourth Circuit shows why.

The case involved an employee of a retail communications company. She contended she was deprived of wages earned as commissions and overtime pay. She sued under the Federal Fair Labor Standards Act and the North Carolina Wage and Hour Act.19132602

When the employee began working for the company, she was given an employee handbook. The business contended that the case should be arbitrated because of a predispute arbitration provision it contained. The company could not locate the acknowledgment she signed noting her acceptance of the handbook. The trial court initially held there was nothing to show the employee had agreed to the arbitration provision.

About two months after the initial trial court ruling, the company found the employee’s acknowledgment. The trial court, however, refused to change its ruling that the employee had not agreed to arbitration. The employer appealed.

The Court of Appeals reviewed the acknowledgment closely and considered its key language:

I understand that I am responsible for reviewing the Prime Communications Employee Handbook.

                                                            * * *

I understand that the Prime Communications’ Employee Handbook is not a contract of employment and does not change the employment-at-will status of employees. Moreover, no provision should be construed to create any bindery [sic] promises or contractual obligations between the Company and the employees (management or non-management).

                                                            * * *

By my signature below, I acknowledge, understand, accept, and agree to comply with the information contained in the Employment Handbook. I acknowledge that I will review and read the Company Handbook and that I have the opportunity to ask my Manager questions about the Handbook. I further acknowledge that I fully understand or will make sure that I do understand the contents there of, as they relate to my employment with Prime Communications. I understand that the information contained in the Handbook are guidelines only and are in no way to be interpreted as a contract.

The appeals court found that the language of the acknowledgment precluded a finding that the employee had agreed that employment disputes should be arbitrated. It relied on the language that: (1) nothing in the employee handbook constitutes a contract and (2) the concepts in the handbook are guidelines only and are not to be interpreted as a contract.

It is common to have language in a handbook receipt that the handbook is not a contract of employment. However, that disclaimer should not apply to the predispute arbitration agreement.

Here are some things to consider.

  • Employees rarely sign the handbook. Do not rely on an arbitration provision appearing solely in a handbook. This does not provide the best protection for the company.
  • Ideally, the arbitration provision should be a in a separate document which can also function as a receipt for the handbook that the employee can sign.
  • The document should recite that both parties have agreed to the arbitration agreement for consideration.
  • The arbitration agreement must be fair. If it is too slanted for the company, it will not be enforced. Predispute arbitration agreements in consumer situations have been evolving to take account of court decisions challenging their fairness. Review the personnel arbitration agreement to be sure it reflects that evolution.
  • Any disclaimer that the handbook does not create a contract of employment should not cover the arbitration agreement. It should be clear that the predispute arbitration provision is an agreement. Any disclaimer of contract should only apply to other provisions of the handbook.