Mandatory arbitration agreement in employee handbook is found unenforceable

November 18, 2013

Employers want to compel employees to submit legal disputes to arbitration instead of a jury. Employers worry about the unpredictability of juries. Employers prefer to not air their dirty laundry with a public jury trial. So, employers ask employees to agree that arbitration will be the exclusive forum for any claim. Not surprisingly, employees are less enthusiastic about their chances in arbitration.

The United States District Court in Massachusetts recently denied an employer’s motion to compel arbitration in Dominichetti v. The Salter School. The employee had filed suit for pregnancy discrimination and illegal retaliation.

The employer’s motion was based on an arbitration clause in the employee handbook. The dispute resolution clause did not have its own signature line. Instead, the employee signed a general acknowledgement that she received the handbook and was aware of its policies.

The Court noted that the handbook allowed the employer to modify the terms without notice to employees. The employer required employees to arbitrate covered disputes, while simultaneously reserving the right to modify the handbook in which the arbitration clause was set forth.

The employee successfully argued that the handbook was not legally binding. The Court concluded that the employer could not have it both ways. The employer could not retain the right to remain free of any contractual obligations, and at the same time insist that the employee be bound by the handbook.

To the extent there was any ambiguity about the binding nature of the arbitration clause in the employee handbook, the Court relied on standard contract law which holds that ambiguities are construed against the drafter of the alleged agreement. The employer wrote the handbook, so it was responsible for any ambiguity. Thus, the employer could not enforce the arbitration agreement. The Court allowed the employee to proceed in court with her lawsuit.

Going forward, if employers want to make arbitration a term of employment, they will need to require employees to sign a stand-alone, specific arbitration agreement, and not bury the clause in a handbook.

Mandatory arbitration agreement in employee handbook is found unenforceable

by: Law Office of Pamela A Smith