California Court Strikes Down Arbitration Clause Contained in Employee Handbook

Following the Fourth Appellate District’s invalidation of an arbitration clause contained in several employment documents, the Second Appellate District has addressed a similar scenario and refused to enforce an arbitration clause contained in an employee handbook.  In Sparks v. Vista Del Mar Child and Family Services, an employer appealed from a lower court’s denial of its petition to compel arbitration of a former employee’s wrongful termination claims based on an arbitration clause contained in an employee handbook.  Although the employee acknowledged receiving a copy of the handbook, the Court held that the employee should not be bound by its terms.

The Court held that the handbook, which contained an arbitration clause (along with many other provisions) was informational rather than contractual because the employer failed to call specific attention to the provision within the handbook.  The Court addressed the employee’s written acknowledgement that he received the handbook and agreed to be “governed” by its terms, but found that this was indicative of nothing more than a reflection of the employee’s understanding that he had to comply with the employer’s policies.  The Court specifically held that under these circumstances, the employee’s written acknowledgment did not constitute an agreement to be bound by the arbitration clause.  Furthermore, the Court noted that because the handbook included a disclaimer that the handbook did not create a contract of employment, there was sufficient ambiguity that must be construed against the employer, the drafter of the document.  The Court cited a line of cases that stand for the notion that an employer may not seek to benefit from the contractual enforcement of provisions contained in a handbook while it at the same time seeks to disclaim that the handbook creates any contractual rights.

In addition, the Court noted that several other circumstances rendered the agreement unenforceable.  The Court remarked that the arbitration agreement was illusory because the employer reserved the right to unilaterally modify the handbook, and that the agreement was procedurally unconscionable because the employee was never given a copy of the American Arbitration Associates rules that would govern any arbitration claim arising out of the employment relationship.  Similarly, the Court found that the agreement was substantively unconscionable because it required the employee to relinquish administrative and judicial rights without making any provision for how discovery would be conducted as part of any arbitration proceeding.  This decision serves as yet another reminder that California courts are reluctant to enforce arbitration agreements unless there is credible evidence that an employee knowingly agreed to arbitrate any dispute arising out of the employment relationship.