Handbook Receipt Language Dooms Mandatory Arbitration Clause

Kollman & Saucier
Kollman & Saucier

Around the corner from our law offices is Nationwide Motor Sales Corporation (NMSC).  NMSC has been sued by a collection of current and former sales persons who claim Nationwide failed to pay them more than $1 million in commissions.  In response to the filed lawsuit, NMSC moved to compel arbitration, citing the Arbitration Agreement that is contained within its Employee Handbook.  The Fourth Circuit just held, in Coady v. Nationwide Motor Sales Corp., No. 20-2302 (4th Cir. April 25, 2022), that NMSC could not compel arbitration because of language in its Handbook Receipt.

NMSC’s Handbook contains a section called “Agreement to Submit All Employment Disputes to Arbitration.”  The first four paragraphs detail the arbitration agreement outlining the intention to arbitrate all employment related claims and the applicable rules and procedures. The fifth and final paragraph states: “By my signature on the ‘Employee Handbook and Operating Procedures’ Acknowledgement Receipt, I confirm that I have read and understand each of the four sections set forth above in this Agreement.” 

The language that appears in the referenced Receipt becomes the Arbitration Agreement’s death knell.  The Receipt starts with the employee confirming receipt of the Handbook and also affirming that the employee has read and understood its contents, including specifically listed sections , among them the Arbitration Agreement.  Then, as nearly every Employee Handbook Receipt should say (in some form or fashion), particularly when an employer is reminding its workforce of its right to make changes to the terms and conditions of at-will employment: “I further understand that the employer has the right, from time to time, to make and enforce new policies or procedures and to enforce, change, abolish or modify existing policies, procedures or benefits available to employees as it may deem necessary with or without notice.”

The Fourth Circuit determined that the Receipt was a part of the Arbitration Agreement because the final paragraph of the Arbitration Agreement incorporated the Receipt and as written, once the Receipt was signed, that was how the employee assented to the Arbitration Agreement.  The Receipt also identified the Arbitration Agreement as one of the Handbook sections to which the Receipt specifically applied.  Lastly, the Fourth Circuit was not convinced by NMSC’s argument that the modification clause within the Receipt only applied to “policies, procedures or benefits” and not “agreements.”  

The lesson here is rather clear:  Any specific agreements that an employer wants to enforce, whether to arbitrate employment law disputes, prevent solicitation of employees or customers, or some kind of valid non-competition agreement, must exist outside of any employee handbook, as a stand alone contract.  The Employee Handbook, if properly drafted, is always disclaimed as a contract.  And while this case involved an extra step or two along the way, in the end, the Receipt’s language confirming the employer’s right to modify its policies in the Handbook is exactly why NMSC could not compel arbitration.  

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