Can Employee Handbooks Require Arbitration of Employment Disputes?

Every business with employees should have an employee handbook.  An employee handbook is essential because it helps employees to understand what their rights are, what the company’s human resource processes and policies are, standardizes company policies and reduces human resource’s time resolving issues. Handbooks and policies are also often required if an employer wants to take advantage of certain defenses or protections. One very common provision in an employee handbook is a statement advising the employee that nothing contained in the handbook creates a contract between the parties, and the handbook does not alter the “at will” nature of the employment. Recently in Bradley v. Wolf Retail Solutions I, Inc., the United States District Court for the Northern District of Illinois held that because a company’s handbook disclaimed all contract rights, the company could not require its employees to arbitrate their claims, despite the fact that the handbook provided that employees’ claims were to be arbitrated.

In Bradley, the plaintiff filed a class action lawsuit alleging that the employer did not pay overtime under the Fair Labor Standards Act and the Illinois Minimum Wage Law.  The handbook contained a dispute resolution provision stating that the employee agreed to mediate any dispute with the company and if not successful, the company and employee agreed to submit the dispute to arbitration. The plaintiff received a digital version of the handbook and signed it by clicking a box next the statement: “I have read, understood and accept the terms and conditions stated in this handbook.”  The company filed a motion to compel the plaintiff to arbitrate her claims. The court refused to compel arbitration.

In denying the company’s motion to compel, the court stated that because arbitration is a matter of contract, i.e., the parties must first agree to arbitrate in order to be required to go to arbitration, and a party cannot be compelled to arbitrate a dispute when there’s no valid contract to do so.  It was, therefore, incumbent upon the employer to prove the existence of a valid contract to arbitrate.  The employer pointed to the dispute resolution provision in the handbook, arguing that the employee acknowledged receipt of the handbook and agreed to the policies therein. The court reasoned, however, that the employer could only rely on the dispute resolution clause in the handbook if the handbook is, in fact, a contract.  The court found that because the handbook stated “in no uncertain terms” that it is not an employment contract, the company could not require the employee to arbitrate the dispute. 

The question is obvious.  How can you force an employee to arbitrate claims, thereby eliminating a public record of the proceedings and keeping the case from a jury, when your handbook does not create any contractual right to do so?  Similar to your ability to enforce a non-compete with an at-will employee, a separate arbitration agreement will likely be enforceable if the agreement is a stand-alone contract and where consideration is given for the agreement.  The consideration may be in the form of a payment, the right to continued employment, or even the agreement to arbitrate a claim itself can be sufficient consideration. In any event, do not assume that your employees will be compelled to arbitrate, rather than litigate, their class action lawsuits if the “agreement” is contained in the employee handbook where no contract is created. Employers have run into similar problems when an employee uses confidential information, but the only confidentiality provision is within the handbook (which by its nature is not a contract). It is also important to ensure that any arbitration agreement with an employee be carefully crafted to eliminate any class or collective claims.

For more information, please contact:

Howard Teplinsky at: hteplinsky@lgattorneys.com or 312-368-0100.

Facebooktwitterlinkedinmail