By Ronald W. Novotny and Jonathan Judge
As employers
increasingly consider adopting mandatory arbitration agreements for employment
disputes following last year’s Supreme Court decision upholding class
arbitration waivers in Concepcion (previously discussed here), there
is an increasing need to review old agreements and policies contained in
Employee Handbooks to ensure that they do not render such attempts futile. Nowhere was this demonstrated more clearly
than in the recent decision in Sparks v. Vista Del Mar Child and Family Services, issued on July 31, 2012, in which the
court denied the enforcement of a policy requiring arbitration because of its
inclusion in a handbook which contained general language permitting an employer
to change its terms unilaterally and stating that it was “not an
agreement.”
Vista Del Mar
Child and Family Services hired Perry Sparks as a temporary employee in January
2007. Sparks alleged that he was
permanently hired in April 2007 as a controller and was terminated for
pretextual reasons in 2010 after he complained of various employee practices
that he asserted violated federal and state reporting and compensation
laws. Sparks filed a wrongful
termination lawsuit. Vista Del Mar filed
a motion to compel arbitration based on the arbitration policy contained in the
handbook.
The court denied
the motion to compel arbitration, citing numerous deficiencies surrounding
Vista Del Mar’s arbitration policy.
First, the
court noted the arbitration clause, in the form of a “Dispute Resolution
Policy,” was buried at page 35 of the employee handbook, in the same type and
size as other provisions of the handbook.
The policy was not prominently distinguished, not specifically
highlighted, and there was no place for the employee to acknowledge the policy
in writing. The court noted that Vista
Del Mar corrected these deficiencies in a later handbook issued in 2009 that
not only required employees to sign for receipt of the handbook acknowledging
inclusion of the arbitration policy, but also required employees to sign a
full, separate arbitration agreement.
Unfortunately for Vista Del Mar, Sparks did not sign the 2009 handbook
acknowledgment, or the separate arbitration agreement.
Thus, Vista
Del Mar was left with the 2006 handbook Dispute Resolution Policy. The court noted that immediately after the Dispute
Resolution Policy, the handbook contained an Amendment, Revisions, and
Modifications Policy, which stated “this handbook is not intended to create a
contract of employment and does not in any way alter the at-will employment
relationship between” Vista Del Mar and its employees. The court found that such language did not bind
Sparks to arbitration as it negated the contractual nature of the Dispute Resolution
Policy. Vista Del Mar could not “have it
both ways” by claiming the handbook was not a contract but then argue that
Sparks was bound to arbitrate employment disputes through the same document.
Further, the
acknowledgment Sparks signed provided that Vista Del Mar could “change, rescind
or add to any policies, benefits or practices described in the Handbook from
time to time in its sole and absolute discretion, with or without prior
notice.” The court found Vista Del Mar’s
ability to unilaterally modify the handbook rendered the agreement to arbitrate
in the Dispute Resolution Policy illusory – even though it has been held that
such a right does not nullify an arbitration agreement so long as it is exercised
fairly and in good faith. 24 Hour Fitness, Inc. v. Superior Court
(1998) 66 Cal.App.4th 1199, 1214.
The court was not finished, and faulted Vista Del
Mar for not providing a copy of the American Arbitration Association (“AAA”)
rules to Sparks as the Dispute Resolution Policy specifically incorporated the
AAA rules. Further, the court determined the policy was unconscionable
because it did not meet the minimum requirements set forth in Armendariz v.
Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000). The
policy language required employees to relinquish administrative and judicial
rights under federal and state law, and contained no express provision
regarding discovery rights.
What This Means For Employers
Above all, the Sparks case stands as just another
example of the extreme judicial hostility some courts still have towards
arbitration agreements in the employment setting. It is difficult to
balance the employer’s desire to avoid eroding the at-will presumption and
avoid creating an implied agreement not to terminate employees but for good
cause against creating a contractual and enforceable obligation to arbitrate
employment disputes. Arbitration agreements that are separate from the
employee handbook allow for clearer distinction between these competing
objectives. Further, to guard against the possibility of such agreements
being invalidated, employers should consider using a stand-alone agreement
which (1) specifies that all claims against the employer and its officers,
directors and employees are arbitrable under the Federal Arbitration Act; (2)
excludes only claims for administrative charges filed with the EEOC and DFEH
(which the Sparks policy failed to do), as well as unemployment and
workers’ compensation insurance, and unfair labor practice charges filed with
the NLRB; (3) provide reference or access to the rules of the tribunal which
will be administering the arbitration; (4) provide that to the fullest extent
permitted by law, the claims asserted in arbitration shall not be joined or
consolidated with those of other parties; and (5) provide that it is the entire
agreement between the parties with respect to dispute resolution and can only
be modified by both parties in writing. By including such provisions,
employers should be able to maximize their ability to enforce arbitration
agreements should the time come for them to do so.
