Why it matters: Upholding the legality of an employer’s arbitration agreement, the Ninth U.S. Circuit Court of Appeals ruled that the company satisfied California’s requirement of providing employees reasonable notice of changes in the employee handbook. Nordstrom sent a letter to all of its employees when it tweaked the terms of its arbitration agreement to prohibit class suits and require individual arbitration. The employer also refrained from enforcing the updated policy for a 30-day period. Even though the communications to employees “were not the model of clarity,” the federal appellate panel held that Nordstrom’s actions were sufficient to make the agreement enforceable, reversing denial of a motion to compel arbitration of an employee’s putative class action suit. In a further victory for employers, the court held that Nordstrom was not required to inform its employees that continued work after receiving the letter constituted acceptance of the new terms of employment.

Detailed Discussion

Faine Davis filed a purported class action lawsuit against Nordstrom in California federal court, alleging the employer failed to provide meal periods and rest breaks. The national retailer moved to compel Davis to individual arbitration of her claims based on the company’s employee handbook.

When Davis began working for Nordstrom, she received an employee handbook. At that time, it contained an arbitration provision that required employees to arbitrate individual disputes but permitted employees to bring class action lawsuits against the company. After the U.S. Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), Nordstrom revised its handbook.

Pursuant to the Court’s opinion, Nordstrom prohibited class suits and required individual arbitration of employee disputes. A federal district court denied the employer’s motion to compel arbitration, finding that Nordstrom and Davis did not enter into a valid arbitration agreement with respect to the revised handbook.

But the Ninth Circuit reversed.

Noting the preference for arbitration under the Federal Arbitration Act (FAA), the court first observed that the original handbook Davis received included an arbitration agreement. Because she accepted employment on that basis, there was already a binding agreement to arbitrate.

The panel explained that California law permits an employer to amend an arbitration agreement as long as employees are given reasonable notice of the change and vested employee benefits are not affected. Nordstrom’s handbook additionally provided that employees would receive 30 days’ written notice of substantive changes in which to decide whether to continue their employment

Nordstrom sent the revised arbitration provision to all employees, including Davis, and did not enforce the new policy for 30 days. Davis herself never objected to the revised provision and did not quit her job.

“While the communications with its employees were not the model of clarity, we find that Nordstrom satisfied the minimal requirements under California law for providing employees with reasonable notice of a change to its employee handbook by sending a letter to Davis and other employees informing them of the modification, and not seeking to enforce the arbitration provision during the 30-day period,” the panel concluded.

In addition, the court held that the employer was not bound to inform Davis that her continued employment after receipt of the letter constituted acceptance of its terms. While California courts have held that continued employment constitutes such acceptance, the Ninth Circuit found no case law mandating that employees be expressly told that fact.

To read the decision in Davis v. Nordstrom, click here.