Worker Bound by Arbitration Agreement in Employee Handbook

By Joanne Deschenaux, J.D. September 21, 2020
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an employee handbook near two pens and a stack of papers

​An employee who signed an acknowledgment that he had received the company's employee handbook agreed to an arbitration agreement contained in the handbook, a California appeals court ruled. The acknowledgment provided that the employee was bound by the provisions of the handbook and that it was his responsibility to read and familiarize himself with all of its provisions. The employer had no duty to call the arbitration agreement to the employee's attention, the court said.

The employee began working for the employer as a facility manager and senior engineer in January 2017. The employer provides post-production technology and services for television and features throughout the U.S.

When he was hired, the employee received a copy of the company's employee handbook. At that time, the handbook did not have an arbitration clause. The employee signed a "receipt and acknowledgment" of that handbook.

In August and October 2017, the employee submitted written complaints to the employer's then-president alleging sexual harassment and retaliation by the company's chief executive officer, among other claims.

In November 2017, an HR consultant working for the employer distributed copies of a revised employee handbook to all employees. The employee signed the "receipt and acknowledgment" page (the final page of the handbook) and returned it to the HR consultant on Nov. 7, 2017.

The language of the November 2017 receipt and acknowledgment of the handbook was identical to the language in the employee's acknowledgment of the original handbook. Both documents stated that the employee acknowledged receipt of the employee handbook, which set forth the terms and conditions of employment with the company. They further provided that the employee agreed that it was his or her responsibility to read all of the handbook provisions and that the provisions were binding.

The revised handbook contained a provision establishing "quick, final and binding" out-of-court arbitration to settle all workplace disputes.

On Jan. 8, 2018, the employee was terminated. He sued the company, alleging sexual harassment, among other claims.

In November 2018, the employer filed a motion to compel arbitration, and the employee claimed that he had not agreed to arbitrate. He claimed that he never received a copy of the revised handbook. He further claimed that even if he had been given a copy, he would never have known that the employer put an arbitration clause in it because the employer had not notified him about how the handbook had been changed.

The trial court denied the employer's motion to compel arbitration. Ordinarily, a party's failure to read a contract before signing it shows a lack of reasonable diligence. But the trial court said the evidence did not support any lack of reasonable diligence on the employee's part because the receipt and acknowledgment form the employee signed did not mention that the handbook now contained an arbitration agreement.

The trial court said it was reasonable for the employee to assume the distribution of the handbook was routine, with no particular reason for the employee to read it again, so it would be "fundamentally unfair" to presume that the employee was aware of the arbitration clause. Therefore, the employee had not agreed to arbitrate, the trial court concluded.

The employer appealed, and the appellate court reversed the trial court's decision, finding the arbitration agreement contained in the handbook was binding and ordering the employee to proceed to arbitration.

Mutual Assent Needed

In California, an arbitration clause is binding if both parties have agreed to it—this is called "mutual assent." The employer argued that the employee showed his assent to the arbitration clause by signing the handbook acknowledgment, and his failure to read the handbook before signing the acknowledgment did not make the arbitration clause unenforceable.

[Need help with legal questions? Check out the new SHRM LegalNetwork.]

The employee argued that because the employer did not inform him that an arbitration clause had been added to the employee handbook, he did not consent to that clause.

The court noted that mutual assent to enter into a contract is determined under an objective standard, looking at the reasonable meaning of parties' words and acts and not their unexpressed intentions or understandings.

The employee did not deny the authenticity of his signature on the acknowledgment page of the November 2017 employee handbook, although he did not remember signing it. Therefore, the evidence showed that he received the handbook, despite his claims to the contrary.

The employee claimed that he did not know his signature on the acknowledgment form was intended to create a contract, but the court said this claim ignores the words on the face of the receipt. The employee acknowledged that the handbook set forth the terms and conditions of his employment, and the employee expressly agreed that he was bound by its provisions.

Further, the court said, the employer had no obligation to point out to the employee that an arbitration clause had been added to the November 2017 employee handbook. California courts have long ruled that a party is bound by a contract even if he did not read the contents before signing it.

Conyer v. Hula Media Services LLC, Calif. Ct. App., No. B296738 (Aug. 26, 2020).

Professional Pointer: Often, an employee handbook includes a disclaimer that the handbook is "not a contract." If an arbitration agreement is contained in a handbook with such a disclaimer, a court will be unlikely to find the arbitration agreement binding.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md. 

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