Over the past decades, more employers have implemented arbitration agreements for their employees. The practical effect of this is that employees who have claims against their employers are required to bring those claims in arbitration, as opposed to court. Arbitration provides a private forum and other benefits that companies often prefer. Employers may conclude that if they are disbursing their Employee Handbooks to their workforce anyway, why not include the arbitration agreement within? That’s why this week I’m answering: Should a business include an arbitration clause in its Employee Handbook?
No. This is a rare occasion where the answer is not “it depends.” The reasoning is that a good Employee Handbook should have language that clearly alerts employees that it may be modified at any time, based on the discretion of the employer. Further, the Employee Handbook should make clear that it is not a contract. This allows employers to modify the policies within and deviate from them should the factual circumstances necessitate it, without being held to the policies within as contractual obligations. Conversely, employers want their arbitration clauses to have the force of a contract. Arbitration agreements are worthless if not enforceable. Accordingly, businesses cannot have it both ways. Employers cannot legally have Employee Handbooks that are not binding contracts, but arbitration clauses within that are binding.
The Fourth Circuit recently examined this issue. The employer’s Employee Handbook contained an arbitration agreement. The handbook itself, however, stated that the handbook was a reference source for policies but that the employer reserved the right to “enforce, change, abolish or modify” the within policies as it deemed necessary. The Fourth Circuit found that this language rendered the arbitration agreement invalid because the promise to arbitrate was illusory due to the employer reserving the right to modify it at any time. Accordingly, the best practice for employers who wish to enforce arbitration agreements is to create and disburse them as standalone agreements.
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