Sparks v. Vista Del Mar Child and Family Services: Court Refuses To Enforce Arbitration Clause Contained In Employee Handbook

by Sayema Hameed

If an employer includes an arbitration clause in a written employee handbook, provides the handbook to an employee, and obtains a written acknowledgment of receipt of the handbook from the employee, is that enough to enable the employer to compel arbitration of the employee’s wrongful termination claims?  In a recent case, the California Court of Appeal has said “NO.”

In Sparks v. Vista Del Mar Child and Family Services (Second District, Div. Five, Case No. B234988; filed 7/30/12), the Defendant Vista Del Mar Child and Family Services (“defendant”) appealed from an order denying its petition to compel arbitration of the wrongful termination claims of its former employee, plaintiff Perry Sparks (“plaintiff”).  The defendant relied upon an arbitration clause contained in its 2006 employee handbook, which the plaintiff acknowledged in writing he received.   The Court of Appeal held that the plaintiff is not bound by the arbitration clause because of the following:

1. The arbitration clause was included within a lengthy employee handbook;
2. The arbitration clause was not called to the attention of the plaintiff, and he did not specifically acknowledge or agree to arbitration;
3. The handbook stated that it was not intended to create a contract with the plaintiff;
4. The handbook provided that it could be amended unilaterally by the defendant, thereby rendering any agreement to arbitrate illusory;
5. The specific rules referred to in the arbitration clause were not provided to plaintiff; and
6. The arbitration clause is unconscionable.

The Court went on to state as follows:

To support a conclusion that an employee has relinquished his or her right to assert an employment-related claim in court, there must be more than a boilerplate arbitration clause buried in a lengthy employee handbook given to new employees.  At a minimum, there should be a specific reference to the duty to arbitrate employment-related disputes in the acknowledgment of receipt form signed by the employee at commencement of employment.

The Court also explained that an employer cannot “have it both ways” by expressly stating that an employee handbook “is not intended to create a contract of employment”  but then claiming that an employee’s acknowledgment of receipt of the same handbook creates a contract to arbitrate any disputes with the employer.  Such language is ambiguous, and that ambiguity is construed against the employer who drafted the handbook.

The Court further explained that an “agreement to arbitrate is illusory if, as here, the employer can unilaterally modify the handbook.”  Moreover, the employer failed to provide the plaintiff with a copy of the arbitration rules to which the plaintiff would be bound, and the plaintiff did not have an opportunity to negotiate the clause.  Finally, the arbitration clause was substantively unconscionable under California state law because it gave the arbitrator the discretion to deny plaintiff any discovery.

For these reasons, the Court of Appeal ruled that the arbitration clause contained in the handbook was unenforceable.  This case reminds employers that they cannot simply bury an arbitration clause in an employee handbook and then attempt to enforce that arbitration clause later on.  At a minimum, the plaintiff must specifically acknowledge and agree to arbitration.