Employee Handbook Provision Referring to Arbitration Agreement Not Sufficient to Bind Employees to Arbitrate Absent Evidence of Actual Signed Agreement

California employers may not rely upon provisions in employee handbooks, referring to the signing of an arbitration agreement as a condition of employment, as evidence that an employee is bound to arbitrate employment-related disputes.

In Mitri v. Arnel Management Company, plaintiffs sued their former employer for sexual discrimination and harassment. 2007 Cal. App. LEXIS 2015 (December 12, 2007). Defendants filed a motion to compel arbitration of plaintiffs' claims, alleging that plaintiffs had signed a binding arbitration agreement. Defendants relied on an acknowledgment of receipt of the employee handbook and provisions in the handbook which read, in pertinent part (emphasis added):

"Any dispute arising out of employment with the Company, as allowed by law, will be settled by binding arbitration. As a condition of employment, all employees are required to sign an arbitration agreement. . . . Employees will be provided a copy of their signed arbitration agreement."

The California Court of Appeal affirmed the trial court's denial of the motion to compel arbitration based on its view that the defendants failed to prove the existence of an arbitration agreement. In reaching its decision, the court relied on general principles of contract law concluding that the provisions of the employee handbook relied upon by defendants were not sufficient to establish that the plaintiffs had consented to binding arbitration. The court found that the provision which stated, "[a]s a condition of employment, all employees are required to sign an arbitration agreement," undermined defendants' argument that the provision in the handbook itself was intended to comprise an arbitration agreement between the company and its employees. The court also found that the acknowledgment receipt form was insufficient to establish the plaintiffs' consent to arbitrate since it did not contain any reference to an agreement by the employee to abide by the handbook's arbitration agreement provision. Accordingly, the Court of Appeal held that the arbitration provisions in the employee handbook only placed plaintiffs on notice that they would be asked to sign a separate arbitration agreement and the handbook provisions did not themselves constitute an arbitration agreement. In light of this recent decision, we recommend that employers review their arbitration agreements and not rely solely on arbitration statements in employee handbooks as evidence of arbitration agreements with employees. Although the Court of Appeal in Mitri did not address whether the employee handbook provisions would have been enforceable in the absence of language referring to a separate agreement that did not exist, we recommend that employers request employees to sign separate arbitration agreements.