ARBITRATION AGREEMENTS: ENFORCEABLE OR UNENFORCEABLE?
In the employment context, arbitration can be an advantageous option in resolving disputes between employers and employees. Arbitration usually allows for a quicker resolution, while keeping the costs of litigation relatively low. As a result, many employers are now instituting mandatory arbitration programs as a condition of the employee’s employment to address any claims arising thereof.
A common way in which employers attempt to implement a mandatory arbitration program is through an arbitration agreement contained within an employee handbook. Recently, however, several courts have determined that some arbitration agreements contained within employee handbooks are unenforceable. The courts reasoned that even though agreements to arbitrate are favored under the law, arbitration agreements are, by their very nature, still contracts and must follow common law principles of contract formation.
Ironically, the majority of employee handbooks are littered with written disclaimers, such as: “this handbook is not intended to be contract, express or implied.” As a result, many employers are finding it difficult to enforce an arbitration agreement that is contained in a handbook where there is language that effectively disclaims the formation of a contract. For example, in Esparza v. Sand & Sea, Inc., 2 Cal. App. 5th 781, 206 Cal. Rptr. 3d 474 (2016), an employer attempted to enforce an arbitration agreement that was contained in an employee handbook despite the inclusion of following disclaimer: “Employees should understand, however, that this handbook is not intended to be a contract (express or implied), nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees.” Id. at 785
In their analysis, the California appellate court first concluded that under general principles of contract law, the disclaimer language was clear and unambiguous, and therefore, the contents of the employee handbook were not intended to create any legally enforceable obligations, including the arbitration agreement. Id. at 789. Second, the court found that the failure to reference the arbitration agreement in the policy acknowledgement form signed by the employee undermined the employer’s argument that the employee explicitly agreed to the arbitration agreement. Id. at 790. The court concluded that the “policy acknowledgement do[es] not evidence a mutual agreement to arbitrate.” Id.
Similarly, in Shockley v. PrimeLending, 929 F.3d 1012 (8th Cir. 2019), the Eighth Circuit Court of Appeals refused to enforce an arbitration agreement that was contained only on the computer accessible employee handbook. The employer maintained the computer network accessible by its employees, which contained employment-related information, such as its new hire policies and the handbook. Id. The Court of Appeals determined that even though the employee had accessed the handbook and clicked on a pop-up window acknowledging that she reviewed the handbook, and potentially the arbitration agreement, a valid and enforceable contract had not been formed. Id. At 1017.
Applying Missouri contract law (similar to Nevada), which requires (1) an offer, (2) acceptance, and (3) consideration to form a valid and enforceable contract, the Court concluded that “an acknowledgment of a review of offered terms alone does not evince an intent to accept those terms.” Id. at 1019. The Court did recognize, however, that had the employer indicated in the arbitration agreement itself that continued employment constitutes acceptance and also informed all employees that continued employment constitutes acceptance, that a valid and enforceable contract may have been formed. Id.
This specific issue has not been addressed by the courts here in Nevada, however, the Nevada Supreme court has held that in certain circumstances, an employee handbook could constitute an enforceable contract. See D’Angelo v. Gardner, 107 Nev. 704, 819 P.2d 206 (1991). Nevertheless, similar to Esparza v. Sand & Sea, Inc., supra, the Nevada Supreme Court has also held that an express disclaimer of implied contractual liability prevents the inference that the employee handbook created an enforceable contract. Id. Therefore, it is not unreasonable to conclude that an arbitration agreement, contained within a handbook that has language effectively disclaiming the formation of a contract, would be unenforceable.
The key takeaway is that employers in Nevada seeking to create enforceable arbitration agreements need to either implement either a standalone arbitration agreement or modify their employee handbooks to ensure that they are not effectively disclaimed and enforceable. Nevada Association of Employers’ can review all current polices in place to ensure enforceability or assist in creating new arbitration agreements.
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