You Can’t Have It Both Ways: Arbitration Agreement in Employee Handbook is Not Binding

Clifford Geiger
Clifford Geiger

The U.S. Court of Appeals for the Fourth Circuit recently confirmed that an employer cannot impose a mandatory arbitration requirement on its employees through an employee handbook when the handbook also contains a disclaimer of contractual intent. Lorenzo v. Prime Commc’ns, No. 14-1622 (4th Cir. Nov. 24, 2015).
Lorenzo brought an FLSA claim against her former employer, Prime Communication, L.P., alleging that she was unlawfully deprived of earned commissions and overtime pay. Prime Communications filed a motion to compel arbitration based on the arbitration provision of its employee handbook. The district court denied the motion. The Fourth Circuit confirmed that ruling, concluding that there was insufficient evidence that Lorenzo agreed to arbitrate her claims.
Lorenzo began her employment with Prime Communications in October 2009, and she received an employee handbook at that time. The employee handbook committed all employment disputes to an internal dispute resolution process and eventually to arbitration. It also provided that an employee waived the right to bring a lawsuit regarding any employment dispute.
Lorenzo signed a form acknowledging her receipt of the employee handbook. The Court quoted the following relevant portions of the form:

I understand that I am responsible for reviewing the Prime Communications Employee Handbook.
* * *
I understand the Prime Communications’ Employee Handbook is not a contract of employment and does not change the employment-at-will status of employees. Moreover, no provision should be construed to create any bindery [sic] promises or contractual obligations between the Company and employees (management or non-management).
* * *
By my signature below, I acknowledge, understand, accept, and agree to comply with the information contained in the Employment Handbook. I acknowledge that I will review and read the Company Handbook and that I have the opportunity to ask my Manager questions about the Handbook. I further acknowledge that I fully understand or will make sure that I do understand the contents thereof, as they relate to my employment with Prime Communications. I understand that the information contained in the Handbook are guidelines only and are in no way to be interpreted as a contract.
(Emphasis added).

The parties agreed that the issue was whether they had entered into a contract to commit employment disputes to arbitration.
The Court concluded that Lorenzo’s acknowledgement that she received the employee handbook and continuing to work after reviewing the arbitration provision may have created implied consent to arbitration. However, the acknowledgement form drafted by Prime Communications and signed by Lorenzo referred to the terms of the employee handbook as “guidelines” and expressly disclaimed any intent to create binding commitments or contractual obligations. Therefore, there was no agreement to arbitrate.
The take away is that employers may not rely on an arbitration provision in employee handbook if that handbook also disclaims the employer’s intent to create a contract. The typical disclaimer should, however, remain in employee handbooks to avoid breach of contract claims. An employer that wants to require alternative dispute resolution should have its employees sign a separate arbitration agreement that very clearly establishes the intent to submit employment disputes to arbitration and identifies the rights being waived by the employee.

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