HR Management & Compliance

An Arbitration Agreement Win for California Employers

By Emily Mertes, Sedgwick LLP

In a recent California Appellate Court decision, what began as an otherwise uncomplicated employment case resulted in an arbitration agreement win for employers. Read on to see how the court determined that employee acknowledgment was sufficient to enforce an arbitration agreement.

The court distinguished and reversed a prior appellate court decision, and in doing so, it recognized some leeway for employers that haven’t obtained employee signatures on separate arbitration agreements. Signing an acknowledgment of receipt that specifically references a separate arbitration clause and then commencing employment may be sufficient to require arbitration.

Acknowledgment Without Signature

Dwayne Harris filed a complaint against his employer, TAP Worldwide, LLC, and two managers alleging wrongful termination and violations of the California Fair Employment and Housing Act (FEHA) as well as several California Labor Code wage and hour claims. TAP sought to compel arbitration, relying on an arbitration agreement contained in the company’s employee handbook, which Harris acknowledged receiving.

Harris denied the existence of a valid arbitration agreement because he had not actually signed the separate agreement. The trial court denied the employer’s request to compel arbitration, and TAP appealed.

On appeal, TAP argued that the trial court erred in denying its request to compel arbitration because the arbitration agreement was enforceable. The company’s employment policies were contained in three documents: the employee handbook, the “Current Employment Alternative Dispute Resolution Policy,” and the “Current Employment Alternative Dispute Resolution Agreement” (the arbitration agreement), which was attached to the employee handbook as Appendix A.

It was undisputed that Harris acknowledged (in a separate, signed acknowledgment form) receiving the handbook with the attached arbitration agreement when he became an employee of TAP.

TAP also asserted both in the trial court and on appeal that the arbitration agreement specifically provided that Harris was deemed to have voluntarily consented to arbitration by continuing his employment.

Paragraph 10 of the arbitration agreement provided, “If Employee voluntarily continues his/her employment with TAP [Worldwide, LLC,] after the effective date of this Policy [or January 1, 2010], Employee will be deemed to have knowingly and voluntarily consented to and accepted all of the terms and conditions set forth herein without exception.”

Despite having received those documents, Harris denied the existence of a valid arbitration agreement because he didn’t sign one. He asserted that he acknowledged only receipt of the documents, and that by law, acknowledging receipt of the employee handbook alone was insufficient to establish a binding agreement to arbitrate.

Harris also asserted that the provision in the employee handbook permitting TAP to modify the handbook at its discretion rendered the arbitration agreement “illusory.” Finally, he argued that any arbitration agreement was unconscionable because he was never informed there was an arbitration agreement and the terms were allegedly unfairly one-sided in favor of TAP.

Read on for more details in the case, along with a bottom line for California employers.