Metropolitan News-Enterprise


Wednesday, August 1, 2012


Page 1


Panel Says Handbook’s Arbitration Clause Invalid




An agreement to arbitrate employment disputes, which was contained in an employee handbook that the plaintiff acknowledged receiving but claims not to have read, was unenforceable, the Court of Appeal for this district has ruled.

Div. Five held Monday, in a 2-1 decision, that while an employee need not necessarily have read a handbook to be bound by an arbitration agreement contained therein, he must at least be made aware of it.

The court affirmed Los Angeles Superior Court Judge Elizabeth A. White’s denial of a petition by Vista Del Mar Child and Family Services to compel a former company controller, Perry Sparks, to arbitrate his wrongful termination claim.

“We hold that plaintiff is not bound by the arbitration clause because that clause was included within a lengthy employee handbook; the arbitration clause was not called to the attention of plaintiff, and he did not specifically acknowledge or agree to arbitration; the handbook stated that it was not intended to create a contract; the handbook provided that it could be amended unilaterally by defendant and thus rendered any agreement illusory; the specific rules referred to in the arbitration clause were not provided to plaintiff; and the arbitration clause is unconscionable,” Justice Richard Mosk wrote for the court.

Justice Orville Armstrong concurred, while Presiding Justice Paul A. Turner argued in dissent that Sparks’ acknowledgment that he received the handbook constituted an agreement to the arbitration clause.

Sparks worked for Vista del Mar from 2007 to 2010. His former employer claims he was terminated for lawful reasons, while Sparks claims he was let go because he complained that Vista del Mar was violating labor laws.

He sought damages for termination in violation of fundamental public policy; unfair business practices; violation of the whistleblower protection in Labor Code Sec. 1102.5(a); and intentional infliction of emotional distress.

Vista del Mar moved to compel arbitration, arguing that the arbitration clause was “prominently” located in the handbook. The policy, contained on pages 35 and 36 of that document, required that employment disputes be submitted “to final and binding arbitration pursuant to the provisions of the Federal Arbitration Act” pursuant to American Arbitration Association rules.

The agreement exempted workers’ compensation and unemployment compensation claims, was expressly binding on both parties, and provided that cases be heard by a single arbitrator and decided within 30 days, with the employer bearing the costs of arbitration.

The handbook also contained a provision stating that it could “be amended, revised, and/or modified by” the employer “at any time without notice” and stated elsewhere that it was “not intended to create a contract of employment and does not in any way alter the at-will employment relationship” between employer and employee.

Sparks declared in opposition to the petition that he was never made aware of the arbitration clause in the handbook, nor was he aware of a second handbook, issued in 2009. Vista del Mar claimed the 2009 handbook was “distributed” to all employees, but did not produce a signed acknowledgment of receipt by Sparks.

The second handbook contained an arbitration provision that was substantially the same as in the earlier one, except that it added a requirement that employees “sign for receipt of the handbook acknowledging inclusion of the arbitration policy stated in the handbook” and “sign a full arbitration agreement that is signed by both the Employee and the Human Resources Director.”

White ruled that mere receipt of the handbook was insufficient to create an enforceable arbitration agreement.

Mosk, writing for the Court of Appeal, agreed.

He cited Mitri v. Arnel Management Co. (2007) 157 Cal.App.4th 1164, which held that a purported arbitration clause in an employee handbook was unenforceable because the handbook language contemplated a separate arbitration agreement, which the employee did not sign. He also cited cases from other jurisdictions.

Mosk went on to say that the employer’s right to unilaterally modify the handbook made the agreement illusory, and that the agreement was unconscionable because the employee was never given a copy of the AAA rules, the agreement required waivers of statutory rights, and there was no right to discovery.

Turner argued in dissent that the arbitration provision was “clearly stated” and that the employee’s acknowledgment that he received the handbook containing it created an express agreement to be bound by it, under what has been “this state’s law until now.”

The provisions “look clear to me,” the presiding justice continued, suggesting that as the company controller, alleging that officials rejected his “sophisticated tax and labor law advice,” the plaintiff was poorly positioned to argue otherwise. Turner also argued that Mitri is distinguishable, noting that the handbook Sparks received contained no comparable language requiring execution of a separate arbitration agreement.

The case is Sparks v. Vista Del Mar Child and Family Services, 12 S.O.S. 3828.


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