Employment Arbitration Agreement Within Employee Handbook Upheld

Matthew J. Roberts; J.D.; Employment Law Counsel/Subject Matter Expert for the CalChamber, reported on a recent California Court of Appeal's decision concerning an employment arbitration agreement. On August 26, 2020, the California Court of Appeal, Second District, reversed a trial court ruling invalidating an employment arbitration agreement contained within an employer’s employee handbook. The case highlights how important it is that employers use well-crafted acknowledgements when distributing new or revised employee handbooks, or even when updating important policies (Conyer v. Hula Media Services, LLC, et al., No. B296738 (Aug. 26, 2020)).

Hula’s Employee Handbooks and Acknowledgments

When Plaintiff Michael Conyer (Conyer) started his employment with Defendant Hula Media Services (Hula) in January 2017, Hula provided Conyer with its employee handbook that was in effect at the time — and did not include an arbitration agreement or arbitration clause. Upon receiving the handbook at hire, Conyer also received a receipt and acknowledgment form to sign affirming that he received the handbook. The form Conyer signed affirmed Conyer’s responsibility to read the handbook and that he understood he was bound by the handbook’s provisions.

Several months into Conyer’s employment with Hula, Conyer complained on multiple occasions that Hula’s CEO was sexually harassing and retaliating against him. In November 2017, one month after Conyer’s last complaint of harassment and retaliation, Hula revised its employee handbook and distributed the revised handbook to its employees. The revised handbook did include an employment arbitration agreement — on page 15 under the subheading “Arbitration” within the larger heading of “Communication and Problem Solving.”

On November 7, 2017, Conyer signed a new receipt and acknowledgment for the revised handbook that was identical to the form he signed upon receiving the handbook when hired in January 2017. Relevant to this case, each receipt and acknowledgment form Conyer signed included the following language:

“This is to acknowledge that I have received a copy of the Employee Handbook. This Handbook sets forth the terms and conditions of my employment as well as the right, duties, responsibilities and obligations of my employment with the Company. I understand and agree that it is my responsibility to read and familiarize myself with all of the provisions of the Handbook. I further understand and agree that I am bound by the provisions of the handbook. I understand the Company has the right to amend, modify, rescind, delete, supplement or add to the provisions of this Handbook, as it deems appropriate from time to time in its sole and absolute discretion.”

Two months later, Hula terminated Conyer’s employment. Conyer sued Hula in court for claims under the Fair Employment and Housing Act and for unreimbursed business expenses. Hula then filed a motion to move the case from court to an arbitrator pursuant to the arbitration agreement in the November 2017 handbook. The trial court denied Hula’s motion and kept the case in court. Hula appealed the decision.

Court of Appeal Reminds Us to Read What We Sign

In opposition to Hula’s motion to force the case into arbitration, Conyer argued that he “never knew the Company had ever adopted any arbitration policy or revised its Handbook.” Conyer also argued that throughout his employment with Hula, he “never received a copy of any revised version of the Employee Handbook and was not informed that there had been a revision to the Handbook.” Conyer lastly argued that based on his complaints about sexual harassment and retaliation a month before the handbook’s revision, he never would have signed an arbitration agreement under those circumstances.

Hula’s human resources consultant, who distributed the revised handbook to all employees in November 2017, disagreed with Conyer; the consultant stated that he distributed the revised handbook to all employees, including Conyer, with instructions to review the handbook and to discuss any concerns and questions the employee may have after reviewing the revised handbook. Conyer never discussed the revised handbook with the consultant.

Conyer responded that even had he been given a copy of the revised handbook, Hula never mentioned that the arbitration agreement was included and Conyer never would have known the arbitration agreement was in the revised handbook unless Hula told him. The Court of Appeal was unpersuaded by Conyer’s arguments and reversed the trial court’s ruling denying Hula’s motion to compel arbitration.

Relying on a California Supreme Court consumer contract case, Sanchez v. Valencia Holding Co., LLC (2015), the Court of Appeal found that a party to a consumer contract seeking to enforce the arbitration clause does not need to specifically point out the existence of the arbitration clause in the contract.

Conyer argued that the receipt and acknowledgment forms were not the same as a consumer contract and that he had no idea he was creating a contract when he signed the forms. The Court of Appeal disagreed because the receipt and acknowledgement form stated on its face that the handbook set out the “terms, conditions, rights, duties, responsibilities and obligations of his employment. And [Conyer] expressly agreed he was bound by its provisions.”

According to the Court of Appeal, that language combined with Conyer’s signature created a contract.

So, even if Hula never informed Conyer that the revised handbook contained a newly implemented arbitration agreement, California law doesn’t require that Hula do so to enforce the contract. As the Court of Appeal concisely stated, “[i]t has long been the rule in California that a party is bound by a contract even if he did not read the contract before signing it.”

Comprehensive Employee Handbooks and Well-Crafted Receipt and Acknowledgment Forms

Although this case involved arbitration agreements, its principles highlight the importance of a comprehensive employee handbook and a robust receipt and acknowledgment form. The form creates a contract that binds the employee to the employee handbook’s provisions. If there are important policies, terms or conditions of employment that an employer wants employees to abide by — such as codes of conduct, company property use, or rest and meal break policies — then employers should include those in an employee handbook and require the employee to sign a receipt and acknowledgment form.

Further, federal and California laws require employers to maintain certain written policies — such as a harassment, discrimination and retaliation prevention policy; lactation accommodation policy; pregnancy disability leave policy; and, if applicable, a family and medical leave policy. The receipt and acknowledgment form creates evidence that the employer has provided these required policies to its employees.

Lastly, this case highlights the flexibility employers have when it comes to modifying their workplace policies. Hula modified its employee handbook with no prior notice to its employees — and was legally able to do so because the language in its receipt and acknowledgment form stated that it can do so anytime, whenever it felt the need and without prior notice to employees.

In addition to maintaining the best practice of annually reviewing and updating the employee handbook, employers should feel comfortable making urgent policy changes throughout the year as needed —provided they distribute the handbook after each revision and obtain a receipt and acknowledgment form for each revision.

Lessons for Employers

Employers who wish to implement and enforce an arbitration agreement may do so within their employee handbook. If they’re including the agreement within the handbook, employers should make sure they obtain a signed receipt and acknowledgment form from each employee, signifying that the employee has received a copy of the handbook and is responsible for reading and understanding the terms and conditions within it.

Creating a comprehensive employee handbook will allow employers to satisfy legal mandates for certain policies (such as the harassment, discrimination and retaliation prevention policy), as well as enforce other optional workplace rules such as use of company property.

Employers can update, remove, add or modify any policy within their handbooks at any time without any prior notice to employees. Each time an employer updates its handbook, it should provide the revised version of the handbook to all employees and obtain a new signed receipt and acknowledgment.