Impact of Arbitration Provisions in Your Employee Handbook

Employment arbitration agreements are a powerful tool for employers seeking to reduce the cost associated with litigation of employment law claims.

The agreements require employees to arbitrate certain disputes arising out of the employment relationship—in particular, employment discrimination and wage-and-hour claims. However, employers hoping to secure binding arbitration agreements from their employees should proceed carefully.

Enforcing an Arbitration Provision

When it is time to enforce an arbitration agreement, the employer must prove that there is, in fact, a binding and enforceable agreement in place. If a standalone arbitration agreement exists between the employer and employee that is signed by the employee, this is not a heavy burden. After all, the law favors the enforcement of agreements to arbitrate.

However, if the arbitration agreement is buried in an employee handbook—in particular, a handbook containing certain boilerplate language that is common to many handbooks—the employer may have a more difficult time securing enforcement.

A recent decision of the United States Court of Appeals for the Eighth Circuit serves as a cautionary tale for employers thinking of including an arbitration provision in their employee handbook.

Cautionary Tale

In Shockley v. PrimeLending, a former employee filed a class action lawsuit against the employer under the Fair Labor Standards Act (FLSA) seeking unpaid wages and overtime. The employer filed a motion to compel arbitration relying on provisions in the company’s employee handbook that required arbitration of FLSA claims and included a class action waiver.

The Eight Circuit declined to compel arbitration for the following reasons:

1.  the arbitration provision was contained in the employer’s employee handbook
2.  the employee handbook was never physically distributed to or signed by employees
3.  when employees clicked on a link to the digital version of the employee handbook, they received a system-generated acknowledgement that they had received and reviewed the handbook—without any evidence that they had actually done so
4. the employee handbook did not include language stating that continued employment constitutes acceptance of the terms contained therein.

Best Practices

In light of Shockley, employers should adopt the following two (2) best practices to ensure that their employment arbitration agreements are enforceable:

Ideally, the employment arbitration agreement should be presented to the employee as a standalone agreement that the employee is required to sign.

Secondly, if the employment arbitration agreement is contained in the employee handbook or in an electronic format that does not require the employee’s signature (e.g., posted to the company intranet), additional steps should be taken to avoid a court finding that the agreement is unenforceable:

o The arbitration provision should be stated in a plain and unambiguous fashion, including a clear statement of the parties’ intention to resolve their employment disputes by arbitration.

o The employer will need to demonstrate that the employee has received, reviewed, and agreed to the arbitration provision contained in the Handbook. Continued employment after receiving an employee handbook containing the arbitration provision—without more—may not be sufficient. It may be necessary to require the employee to sign not only an acknowledgment of receipt of the handbook, but also a statement confirming their agreement to the arbitration provisions contained in the handbook.

o Many employee handbooks contain boilerplate language stating that the handbook is not a contract of employment and does not give rise to contractual rights. To avoid any conflict with the contract disclaimer language, the employer should consider having the employee sign a separate acknowledgment stating that they have received, reviewed, and agree to comply with the arbitration provisions in the handbook.

Shockley provides a valuable lesson for employers: arbitration provisions—whether contained in a standalone agreement or in an employee handbook acknowledgment page—should be drafted and/or reviewed by counsel prior to implementation. The cost of that review is an investment worth making to ensure that employment disputes can be resolved through arbitration rather than through costly court proceedings.

For additional information about how an employment arbitration agreement could protect your business from employment-related claims and class actions. Contact Jean Harrington to learn more.

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