Image of two men shaking hands and in the background is a contract being signed



The California Court of Appeals handed down a decision the other day that should be of interest to employers, employees, and their lawyers. Before I discuss the ruling, a little background is in order about arbitration. Our state legislature and the courts are very pro-arbitration, and will therefore nearly bend over backwards to require litigating parties to arbitrate their disputes rather than to sue in court. But the law is very clear that a court may not generally compel a party to arbitrate instead of sue in court, unless that party has agreed to arbitrate. Such agreement is usually obtained in writing—you’ve certainly signed many documents that contain your express agreement to have an arbitrator decide any dispute.

    Employers commonly require employees to arbitrate as a condition of employment. To that end, many companies distribute an employee handbook containing all sorts of material, conditions, policies, and agreements. The courts have no compunction about finding that an employee who agreed to arbitrate, per an agreement in the handbook, must arbitrate. The interesting twist in the case under discussion, Esparza v. Sand & Sea, Inc. (2 ND Dist., Aug. 22, 2016), is that while the handbook discussed all the usual employment matters, including the company’s policy of arbitrating employee disputes, the handbook specifically provided that nothing in it was intended to create any legally enforceable obligations by the parties.

    The plaintiff had filed suit in court for sexual harassment, sex discrimination, etc. The employer moved the court to compel arbitration, no doubt in order to keep the case from a jury’s generous hands. The issue was whether the handbook created a mutual agreement to arbitrate. The handbook contained an arbitration provision, but the handbook also stated in a welcome letter, “[T]his handbook is not intended to be a contract . . ., nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees.” The employee had signed a form acknowledging she had received the handbook, which mentioned the arbitration provision as one of the “policies, practices, and procedures” of the company. But the acknowledgement form did not state that plaintiff agreed to the arbitration provision, and expressly recognized that she had not read the handbook at the time she signed the form. The court found, under these circumstances, that the arbitration provision did not create an enforceable agreement to arbitrate. The employer lost its bid to compel arbitration.

    One of the lessons to be learned from this snafu is that careful drafting is essential. It should have been obvious to the employer (or at least its attorney who drafted the handbook) that if you announce that nothing in the handbook is meant to create a contract, then no contract will be found—including one to arbitrate. It made no sense to set forth all sorts of policies and procedures important to the employer, only to state that the employee was not legally bound. Another lesson is that it pays to read and consider employee handbooks very carefully, whether you’re the new hire or the company. Courts construe language very carefully, and they attribute normal meanings to words. If you want to ensure a right to compel arbitration—which is usually not in the employee’s interest—you had better express it in no uncertain terms. And if you’re a disgruntled employee, it pays to review all handbooks, agreements, etc., with a fine-tooth comb, to discern what your rights are—no matter what your attorney or the employer tells you. Use your common sense; don’t rely exclusively on your harried lawyer.

    One other lesson for employers is that if you don’t want to establish enforceable contract provisions in the handbook, then at least present a written agreement to the employee after the handbook is read and acknowledged. It’s hard to discern why the employer, having expressed its requirement to arbitrate, did not ensure the employee would be contractually bound. Perhaps the answer is as simple as that the employer was careless. That was one costly goof.