Is Your Arbitration Dispute Resolution Policy In Your Employee Handbook Enforceable?

Employers beware: you may be precluding your rights to arbitration if you maintain unilateral discretion to alter the terms of an employee handbook. In Domenichetti v. The Salter School, LLC, et al., Judge Saylor of the United States District Court for the District of Massachusetts ruled that an employer was precluded from enforcing the terms of the Dispute Resolution clause located in its employee handbook because the employer had the power to require the employee to arbitrate the covered dispute, while simultaneously reserving the right to modify the agreement and such an agreement is not enforceable. 

In the Domenichetti case, the Plaintiff filed a civil action contending that the Defendants, her employer, The Salter School, LLC; its owner, Premier Education Group, LP; and her former supervisor, David Palmer, interfered with her request for maternity leave under the Family Medical Leave Act and retaliated against her by passing her over for promotion and demoting her to a part-time position.

The Defendants moved to compel arbitration and to stay or dismiss the litigation. The Defendants contended that Plaintiff signed the employee handbook, an agreement requiring that any dispute be submitted to arbitration. The Plaintiff disagreed arguing that she did not agree to arbitrate her claims, because any alleged arbitration agreement was contained within a non-contractual employee handbook and is unenforceable.

The employee handbook at issue in the case appears to be a typical ordinary employee handbook. The 2004 employee handbook contained 55 pages and articulated the company’s policies. The handbook instructed employee, under the heading “Employment,” “NOTHING IN THIS HANDBOOK CONSTITUTES A PROMISE OR GUARANTEE AS TO THE TERMS AND CONDITIONS OF YOUR EMPLOYMENT WITH PREMIER.” The Dispute Resolution Policy states that the employee and employer both make mutual promises to one another to agree “[t]o be bound by the Grievance and Arbitration Procedure” of the handbook for covered disputes, which amounted to “any claim that the employer has violated the employee’s rights under any federal, state, or municipal constitution, statute, regulation, common law or ordinance.” The Receipt & Acknowledgment page of the handbook stated that “the handbook is intended to provide an overview of the company’s current policies,” and that “the contents of this Handbook may be changed at any time at the discretion of Premier Education Group.”

The Court noted decisions from other jurisdiction that found the obligation to arbitrate unenforceable when the employer retained the unilateral right to change the terms of the agreement because such a right renders any recited promise illusory. The Defendants argued that the Dispute Resolution Policy was a separate and distinct agreement apart from the rights reserved by the employer to modify the terms of the employee handbook. The Court did not agree, finding that the Dispute Resolution Policy was embedded in the handbook that shared the same appearance as the other company policies. Therefore, the Court held that:

Defendants retained the ability to modify the terms of the Handbook at their discretion, without notice to Plaintiff. Because the Dispute Resolution Policy was a subsection of the Handbook, the power to modify terms also applied to the Dispute Resolution Policy. Defendants thus had the power to require Plaintiff to arbitrate the covered dispute, while simultaneously reserving the right to modify the agreement. Such an agreement is not enforceable.

In light of this decision, employers should review their employee handbooks, especially if the terms contain an arbitration provision. Employers should consider if it’s necessary to separate any dispute resolution policies, including any provision for arbitration into a distinct agreement to avoid issues of enforceability.

Contact Attorney Mucci, an experienced employment law attorney, if you are an employer or employee and have questions about the enforceability of terms in an employee handbook.