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.

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Is Your Business Litigation Proof?

The heading of this blog is a misnomer. There is no such thing as being litigation proof. Anyone can sue your business for any reason and meritorious or not, you will still have to defend the claim.

Still, there are many important steps a business can and should take to reduce its exposure and put itself in an advantageous position in the event a lawsuit is filed. Here are two simple actions that every business, large and small, should take in order to be a little bit more secure in today’s volatile world.

1. An Updated Employee Handbook

Employee handbooks set forth company policy for all employees to follow. Handbooks are useful reference materials that employees can rely upon to guide their day to day activities. They are also evidence of a company’s practices that can be introduced in the event of a lawsuit.

As a business grows, it should be mindful that different laws will apply to it. For example, once a business employs 15 employees, that business is now subject to the provisions of the Americans with Disabilities Act (“ADA”). Once that happens, an employee handbook should be modified to include language related to the reasonable accommodations that the business will make to comply with the ADA. If an employee with a disability were to file a claim under the ADA, a company with a handbook containing reasonable accommodation language would have a stronger argument that its practice is to comply with the ADA, than a company without such a policy in its handbook.

Also, business owners must be mindful that the law is constantly changing. For example, Illinois just enacted a law that requires an employee’s existing sick leave be granted to employees not only while they are sick, but also to care for sick family members (read more about that law here – https://lgattorneys.com/illinois-employee-sick-leave-act). Illinois businesses should amend their handbooks to reflect the change or discuss the pros and cons of moving away from sick leave/vacation time to paid time off that does not differentiate between sick leave and vacation time.

2. Record Retention Policy

If a company becomes involved in litigation, regardless of the issue, there is going to be a records request for all relevant documents in anyway related to the underlying lawsuit. This often involves emails and other electronic communications.

Having a records retention policy is important for several reasons. First, it ensures that all documents are kept for the optimal amount of time to conduct business without clogging servers or storage spaces. Second, it ensures that a company isn’t holding any documents for longer than legally required. Should a business be subject to a records request, a business is required to produce the documents in its possession. A plaintiff in a suit cannot use a document against you if you do not have it (and are not legally required to have kept it). Third, there are many record retention laws specific to different areas of business. A record retention policy can make sure a business does not violate the law by getting rid of documents too soon.

It is important that the business in question follow its policy universally and not on an ad hoc basis. As long as there is not a litigation hold in place requiring a company to keep all related records, then the company is free to follow its record retention policy without inadvertently destroying evidence and leading to a claim of evidence spoliation.

By consulting with an attorney and preparing an employee handbook and records retention policy, a business can take important first steps toward avoiding litigation, or at least being better placed to withstand a lawsuit if one comes its way.

For more information about developing an employee handbook or record retention policy appropriate for your business, please contact:

Robert Cooper at:

rcooper@lgattorneys.com or 312-368-0100.

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