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The Arbitration Section In Your Employee Handbook Is Not An Agreement to Arbitrate

Over on our sister blog, ADR Viewpoints, our colleague Gil Samberg highlights a recent case cautioning employers that a mere handbook provision mentioning arbitration may not be construed as an enforceable agreement to arbitrate employment disputes.  Read more below.

Federal law nowadays certainly favors enforcement of agreements to arbitrate.  But generally applicable state contract law determines contract formation – i.e., whether such an agreement has been made.  Contract formation generally requires three simple elements:  offer, acceptance, and consideration.  Posting an arbitration section in your employee handbook may put an employee on notice of a company policy or “offer,” of which the employee could be said to be “generally aware,” but it might not, without more, establish that there is an agreement to arbitrate.  There must be evidence of the employee’s acceptance.

A case in point:  Shockley v. PrimeLending, 2019 U.S. App. LEXIS 20873 (8th Cir. Jul. 15, 2019).  There, the Eighth Circuit, applying Missouri contract law, determined among other things that even an employee’s acknowledgment of her review of arbitration terms “offered” in an employee handbook and her continued employment, without more, would not show an intent to accept the offer.  (Naturally, the law in other States may differ, and so it will be wise to stay abreast of pertinent developments in this regard.)

Shockley, a PrimeLending (“PL”) employee, sued her employer under the Fair Labor Standards Act (“FLSA”) for allegedly unpaid earned wages and overtime pay.  PL moved to compel arbitration.  See 9 U.S.C. § 4.  The District Court denied the motion, and the Eighth Circuit Court of Appeals affirmed, on the basis that no agreement to arbitrate had been formed.

PL’s mandatory arbitration terms were contained in its employee handbook (the “Handbook”), which was accessible online via a “computer network” maintained by the employer.  2019 U.S. App. LEXIS 20873 at *2.  Twice during her employment, Shockley had opened an access to the Handbook, which “automatically generated an acknowledgment of review” by her, but there was no evidence that she took the next necessary step – using a hyperlink to open the full text of the Handbook.  Thus, there was no evidence that she had actually reviewed the arbitration terms in the Handbook.

PL’s “Dispute Resolution/Arbitration Clause” in the Handbook mandated negotiation, followed if necessary by JAMS arbitration.  It also had a delegation provision.  (And the Federal Arbitration Act expressly applied.)

The Court of Appeals reviewed the District Court’s denial of PL’s motion to compel de novo.  It first had to determine whether the delegation provision should be enforced, and thus who – judge or arbitrator – was to decide in the first instance the threshold matter of whether there was a valid arbitration agreement.

The Court turned to Missouri contract law.  Under Missouri law, a valid offer includes “the ability to accept through affirmative words or actions.”  Id. at *6.  An offeree accepts when he/she “signifies assent to the terms of the offer in a ‘positive and unambiguous’ manner.”  Id.  And of course, there must be an exchange of consideration.  Id.

A delegation provision with respect to arbitration is “an additional, antecedent agreement” to arbitrate threshold issues concerning the arbitration agreement.  Id. at *6‑*7.  As a severable agreement, it is deemed valid and enforceable unless a specific challenge to it is made.  Id. at *7.  Conversely, if such a provision is not directly challenged, it is presumed valid.  And in that case, “antecedent questions such as an arbitration contract’s validity would go to the arbitrator.”  Id. at *7.

The court found that Shockley had adequately – that is, specifically – challenged the delegation provision on essentially the same grounds as she had challenged the validity of the alleged arbitration agreement.  Id. at *8.  It therefore focused on whether Shockley had accepted PL’s “offer” of a delegation agreement, assuming arguendo that such delegation term had been adequately offered.  Id. at *9.  It viewed the question to be whether Shockley “objectively manifest[ed]” her intention to be “presently bound.”  Id.  In that regard, critically, under Missouri law, the “mere continuation of employment” following the issuance of an arbitration policy without more did not manifest assent to the terms of arbitration.  Id. at *9-*10.  That was silence, rather than acceptance.

However, the court indicated, the analysis could be otherwise when an employer’s offer “clearly states that continued employment constitutes acceptance, and the employer informs all employees that continued employment constitutes acceptance.”  Id. at *10.  That however, had not been the case with respect to Shockley.  Id.

In Shockley’s case, it was not established that she actually reviewed the relevant Handbook terms at all, although there had been an automated acknowledgment of her having accessed the Handbook on the PL system.  Id. at *10.  Thus, at best, PL could show that “Shockley acknowledged the existence of the delegation provision,” and was thereby “aware” of the terms of PL’s purported offer.  Id.  However, neither general knowledge nor awareness of the existence of an offer constitutes “the positive and unambiguous unequivocal acceptance required under Missouri law.”  Id. at *11.  The court concluded that “mere review of the subject materials” would not constitute an acceptance, and that “an acknowledgment of a review of offered terms alone does not evince an intent to accept those terms.”  Id.  Absent a showing of unequivocal acceptance, no agreement regarding delegation was created.

Thus, the alleged delegation agreement was invalid, and the validity of the arbitration agreement itself was for the court to decide, rather than the arbitrator.  And for the same reasons as applied concerning the delegation provision, there was an “absence of proof of unequivocal acceptance of an agreement to arbitrate,” rendering that purported provision unenforceable.  Id. at *12.

The lessons are plain.  An employer needs to be able to prove acceptance by each employee of an “offer” of arbitration.  The more buried an agreement to arbitrate is, the more difficult it will be to show that an employee accepted the “offer” in that regard.  An arbitration agreement can be set out in a document/instrument that requires that employee’s countersignature.  If it is to be contained in an employee handbook, that handbook could be distributed in hard copy to the employees.  And in any case, the face page of the handbook could bear a prominently displayed written term that acceptance of employment and/or continuation of employment constitutes acceptance of the terms set forth in the employee handbook.  Moreover, however it is published, the terms of an arbitration agreement should be set forth clearly and prominently.

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