A new hire packet for an employee can be painfully long (for the employer and the employee). The company’s grievance and arbitration policy and procedure can take up a lot of space in the packet. Getting an enforceable arbitration agreement is obviously critical. So that raises the question: Can an employer have a one-page arbitration agreement in the new hire packet and incorporate the grievance and arbitration procedures (which can span over 10 pages) by reference. The answer is yes, but the employer has to handle this process carefully.
General contract law principles govern whether the parties have entered into a binding arbitration agreement. Therefore, the employee’s acceptance of the arbitration policy may be express or implied-in-fact by the employee’s continued employment where acceptance of the agreement is made a condition of employment.
Courts have drawn a line (although not perfectly) between the agreement to arbitrate, on one hand, and the procedures governing the arbitration process on the other. The employer and employee can agree to arbitration, but use procedures of JAMS, AAA, the California Arbitration Act (CAA), or its own company specific grievance and arbitration procedure.
It is also well established that the parties may incorporate by reference into their contract the terms of some other document. Each case turns on its facts. Generally, for the terms of another document to be incorporated into the document executed by the parties the reference must (1) be clear and unequivocal, (2) be called to the attention of the other party who must consent thereto, and (3) the terms of the incorporated document must be known or easily available to the contracting parties. The contract need not recite that it “incorporates” another document, so long as it guides the reader to the incorporated document. If these conditions are met, an employee may agree to arbitrate claims against his or her employer by signing an acknowledgment form that incorporates the employer’s employee handbook and the arbitration policy it contains. But again, handle this with care and make sure it’s done right.
In litigation, an employee may still oppose a motion to compel arbitration even though it signed an acknowledgment re: arbitration agreement, by arguing that it didn’t get a copy of the arbitration procedures. This shouldn’t present too much of a problem (perhaps depending on the judge) if the employer handles this part of the process really well.
In Cruise v. Kroger Co., 233 Cal.App.4th 390 (2015), a new hire signed a one-page document agreeing to arbitration. Despite being only one page, the agreement was pretty specific and incorporated by reference the company’s dispute resolution policy (what many companies call a “DRP”). The DRP wasn’t attached to the Agreement and the employee said she never got a copy. The trial court accepted employee’s evidence and denied Kroger’s motion to compel arbitration, finding there was no agreement to arbitrate. The appellate court reversed. The court drew a distinction between an agreement to arbitrate (which was detailed, in writing and signed by the employee) and procedures governing arbitration (which the employee said she never received). The court noted that in California, the general rule is that arbitration should be upheld unless it can be said with assurance that an arbitration clause cannot be interpreted to cover the asserted dispute. The only impact of Kroger’s inability to establish the contents of its arbitration policy is that Kroger failed to establish that the parties agreed to govern their arbitration by procedures different from those prescribed in the CAA (found at Code of Civil Procedure §§ 1280 et seq.). Unless the parties otherwise agree, the conduct of an arbitration proceeding is controlled by the California’s Arbitration Act. (See, e.g., §§ 1281.6, 1282, 1282.2.) So, the arbitration agreement was upheld as enforceable, but the appellate court said that arbitration would take place under the CAA. (The CAA is actually first rate substitute.)
But there are various ways to avoid the issue faced by Kroger — the employer just needs to think, plan and execute well (with the help of its labor attorney).
The Winter that Never Ends — Assault on Arbitration Agreements Continues
Poublon v. CH Robinson, 2/3/17, 9th Cir.
Another in a seemingly unending, mind-numbing stream of opinions concerning the enforceability of arbitration agreements in the employment class-action context. Here, every year plaintiff was made to sign an agreement in order to get her bonus; every year the document had an arbitration agreement. The agreement had provisions waiving PAGA representative claims, allowing the employer (but not employee) to go to court for certain claims (aka a “judicial carve-out”); putting venue in a different state, limiting discovery; making the arbitration confidential, and authorizing attorney’s fees for frivolous claims and bad faith litigation tactics. The trial court denied employer’s motion to enforce the arbitration agreement, citing unconscionability. Held: Reversed
Every couple of days we are told by another appellate court that the Federal Arbitration Act puts arbitration contracts on the same footing as other contracts, that inferences must be drawn in favor of enforceability and the party opposing the agreement carries the burden of proving the agreement is not enforceable. Sounds and feels like lip-service — Parties and courts continue to put arbitration agreements under an electron microscope, and no other type of contract receives the same degree of scrutiny.
The court said that adhesion contracts are not necessarily procedurally unconscionable. That should go without saying. Today most contracts are form contracts drafted by lawyers and offered on a “take-it-or-leave-it” basis. Attorneys draft and revise contracts because of the unending, often confusing and at times oppressive legal and regulatory requirements and pitfalls, not to mention the need to comply with federal and state laws. It is way more consistent and way more efficient for companies to use form contracts that has been vetted by the legal department. And it would be impossible for big employers or companies to have a bunch of different contracts for the same product or class of employee — Who is going to draft, review, negotiate and keep track of all the changes? And if companies can offer their contracts on a take-it-or-leave-it basis then, per the FAA, they can do the same exact thing with arbitration contracts. Don’t like it, tell Congress.
In reviewing each of the the terms of the agreement that were allegedly substantively unconscionable, the court explained why none of them should prevent enforcement of the arbitration agreement:
- The employer apparently conceded that the judicial carve-out was unconscionable. But why concede that!? The fact that there is not 100% mutuality in the arbitration agreement doesn’t “shock the conscience,” and there is no general rule that other contractual terms have to be 100% mutual. War, murder, torture, lying, fraud etc. “shock the conscience,” and the fact tht a company may have to rush to court to save its IP doesn’t fall in the same category. In any case, 9C simply said this term could be excised from the agreement.
- The waiver of representative PAGA claims was unenforceable; but that also didn’t make the waiver unconscionable. It’s a simple solution: The PAGA claim stays in court, and the remaining claims go to arbitration.
- Per 9C precedent, a forum selection clause also does not render the arbitration agreement unconscionable; in fact, venue selection clauses are, subject to certain limits, enforceable. Moreover, the agreement here allows the arbitrator to order a different venue if it makes sense to do so. (This is the one part of the opinion that causes concern — California employees should not be made to travel to a different state to protect to their rights!)
- The fact that the arbitrator was given the authority to award attorney’s fees for frivolous claims, counterclaims and bad faith litigation tactics merely echoes Cal. Code Civ. Pro. 128.7, our counterpart to Rule 11. That term does not rewrite the attorney’s fees statutes related to wage and hour claims, all of which are probably one-way fee shifting statutes.
- On the issue of limited discovery, the California Supreme Court has already said that limited discovery in arbitration is okay. Limited discovery helps preserve the simplicity, informality and expedition of arbitration. Moreover, the agreement allows the arbitrator to order more discovery upon a showing of good cause.
- The term making the arbitration confidential was also not unconscionable, a conclusion supported by a California Court of Appeal opinion. And the provision would not prevent the employee from conducting discovery.
Even though this opinion makes one hope there is light at the end of the tunnel, right now it feels that this winter is never going to end!