Arbitration clause in employee handbook not an agreement to arbitrate employment disputes

Employee handbooks are extremely useful, but they should never be contracts. In fact, all handbooks should contain one or more conspicuous disclaimers stating they are not contracts to avoid creating unintended contractual rights for employees.

In employment cases, it's not uncommon for employees to sue an employer for breach of contract for violating a handbook provision. In its defense, the employer inevitably points to the conspicuous disclaimer in the handbook stating that the document is "not a contract" and "is not intended to create any contractual rights." It's unusual to see employers argue that a handbook creates a contract. But that's exactly what the employer argued in Lorenzo v. Prime Communications, L.P., Nos. 14-1622 and 14-1727 (4th Cir. Nov. 24, 2015).

In Lorenzo, the plaintiff employee sued her employer for violating state and federal wage and hour laws. Relying on an arbitration provision contained in the company's employee handbook, which had been provided to Lorenzo when she began her employment, Prime Communications filed a motion to compel arbitration.

The district court denied the motion, concluding that Prime Communications did not provide sufficient evidence that Lorenzo had agreed to arbitration. The court held that mere receipt of the employee handbook and continued work for Prime Communications after receiving it were insufficient evidence of Lorenzo’s agreement to the handbook’s arbitration provision.

In response to Prime Communications’ argument that “its routine requirement for employees to execute an acknowledgment form [was] sufficient evidence of [Lorenzo’s] agreement,” the court noted that Prime Communications “ha[d] been unable to produce any signed acknowledgment form signed by [Lorenzo],” and thus found the argument “untenable.”

The acknowledgment signed by the employee expressly disclaimed (as it should) that it formed a contractual relationship between the employer and employee:

I understand that I am responsible for reviewing the Prime Communications Employee Handbook.

* * *

I understand that the Prime Communications’ Employee Handbook is not a contract of employment and does not change the employment-at-will status of employees. Moreover, no provision should be construed to create any bindery [sic] promises or contractual obligations between the Company and the employees (management or non-management).

* * *

By my signature below, I acknowledge, understand, accept, and agree to comply with the information contained in the Employment Handbook. I acknowledge that I will review and read the Company Handbook and that I have the opportunity to ask my Manager questions about the Handbook. I further acknowledge that I fully understand or will make sure that I do understand the contents there of, as they relate to my employment with Prime Communications. I understand that the information contained in the Handbook are guidelines only and are in no way to be interpreted as a contract.

(emphasis added).

Agreeing with the district court that the handbook's arbitration clause was not a contract, the Fourth Circuit refused to compel arbitration. It emphasized that although the handbook committed “all employment issues” first to an internal dispute resolution process, then to mediation, and finally to arbitration, the signed acknowledgement form stated that “no provision should be construed to create any bindery [sic] promises or contractual obligations between the Company and the employees."

Moral to the story: It's best to use stand-alone arbitration agreements. Don't bury the provision in a handbook, especially one with a prominent disclaimer stating that none of its provisions constitute a contract.