Case Study Illustrates Drafting “Do’s” and “Don’ts”

California law very strongly supports two potentially conflicting policies on the handling of employment disputes.  On the one hand, employees and employers alike have rights to have their civil claims heard by a jury in a formal court proceeding. On the other, this state recognizes the rights of employers and workers to contract for the private arbitration of any employment-related dispute despite either side’s rights to a jury trial.  The common wisdom is that employers generally prefer arbitrations over jury trials as arbitrations are faster, private and don’t involve the sometimes volatile, less objective opinions of multiple jury members.

For more than ten years, California court decisions have sought to draw the line between these two competing interests by analysis of the unfairness of the contract terms for arbitration. Circumstances which indicate: i) an employer’s imposed oppression or surprise in the bargaining and negotiation of the contract; and ii) overly harsh and one-sided results favoring employer are considered “unconscionable,” thus rendering the arbitration agreement unenforceable. See, “Arbitration Nation”

A recent California Court of Appeal case illustrates how an employer should not go about establishing mandatory arbitration for all workplace disputes. Sparks v. Vista Del Mar Child & Family Services (July 30, 2012).  The court declined to enforce the defendant business’s claimed arbitration agreement for several reasons, including:

• The employer had buried the arbitration provision in a lengthy employee handbook (thus indicating the provision was probably not subject to negotiation between the parties);

• The provision was not prominently distinguished from the other passages in the handbook nor was there any place for employees to acknowledge that provision in writing at that point in the pages;

• There was no reference to the arbitration clause in the overall acknowledgement statement for receipt of the handbook;

• The handbook clearly stated it was not intended to be a contract but was instead a general summary of workplace policies, provided for “information” purposes;

• The arbitration provision was illusory since the employer could unilaterally modify the handbook, including the arbitration provision, at any time; and

• The arbitration policy referred to the American Arbitration Association’s (AAA) procedural rules but the employer never provided them to the employee.

Among its many lessons, the Sparks case confirms that arbitration agreements should ideally be set out separately from a company’s handbook.  If that is not possible, arbitration provisions in a workplace policy manual as well as the employee’s accompanying acknowledgment statement for that provision should be prominently displayed in that policy volume.  A “management side” employment attorney should be able to assist in developing sound workplace arbitration agreements.