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Arbitration Clause Contained In Employee Handbook Held Unconscionable

Sparks v. Vista Del Mar Child and Family Services (2012) 207 Cal.App.4th 1511, 145 Cal.Rptr.3d 318

Background: Plaintiff Perry Sparks filed a filed a wrongful termination complaint against employer Defendant Vista Del Mar Child and Family Services. Defendant relying upon an arbitration clause in its employee handbook (Handbook) filed a petition to compel arbitration and stay the action, and moved for a hearing.  The Plaintiff had acknowledged that he received the employee handbook.

Court History: The trial court denied defendant’s petition and concluded that there was no agreement to arbitrate because the mere acknowledgement of receipt of the Handbook was insufficient to create an enforceable arbitration agreement. Defendant appealed.

Pertinent Issues addressed:  The Court of Appeal affirmed the trial court’s and denied Defendant’s petition. Among other findings, the Court found the arbitration clause unconscionable on the following grounds:

  • The arbitration provision was not prominently distinguished from the other clauses in the handbook;
  • Defendant failed to point out or call attention to the arbitration requirement in the Acknowledgment;
  • No employment contract was formed. The handbook expressly provided: “This Handbook is not intended to create a contract of employment….”
  • There was no mutual agreement. The handbook only expressed the employee’s understanding that he must comply with personnel policies and obligations, not an agreement to arbitrate;
  • The agreement was illusory. The employer retained the right to unilaterally modify the handbook;
  • Defendants failed to provide a copy of the arbitration rules;
  • The agreement was a contract of adhesion because there was no negotiation between parties as to terms of the arbitration agreement (arbitration clause was buried in the handbook that was “distributed” to all employees);
  • The agreement clause was oppressive because it was presented on a ‘take it or leave it’ basis;
  • The arbitration clause required the employee to relinquish his or her relevant administrative and judicial rights under federal and state statutes and failed make express provision for discovery rights.

The Court of Appeal further clarified that, although the Federal Arbitration Act preempts state-law rules that stand as an obstacle to the accomplishment of the Act’s objective, the issue of whether the parties agreed to arbitration is ordinarily decided under state law. Moreover, the United States Supreme Court in AT & T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740 (Concepcion) did not eliminate state law unconscionability as a defense to the enforcement of arbitration agreements subject to the Federal Arbitration Act.  (Emphasis added.)

The Court of Appeal further emphasized that,

“To support a conclusion that an employee has relinquished his or her right to assert an employment-related claim in court, there must be more than a boilerplate arbitration clause buried in a lengthy employee handbook given to new employees. At a minimum, there should be a specific reference to the duty to arbitrate employment-related disputes in the acknowledgment of receipt form signed by the employee at commencement of employment. The increasing phenomenon of depriving employees of the right to a judicial forum should not be enlarged by imposing upon employees an obligation to arbitrate based on one obscure clause in a large employee handbook distributed to new employees for informational purposes.” (Sparks v. Vista Del Mar Child and Family Services (2012) 207 Cal.App.4th 1511, 145 Cal.Rptr.3d 318)

Pointers:

  • The cases gives a breather to Plaintiff’s counsel after the recent decision in Nelsen v. Legacy Partners Residential, Inc. (207 Cal.App.4th 1115, 144 Cal.Rptr.3d 198), where the Court of Appeal upheld an arbitration agreement that was contained in an employee handbook and rejected the arguments based upon unconscionability and public policy.
  • The case does not suggest that every arbitration agreement in an employee handbook would be unconscionable, rather it is a reminder to the employers that the arbitration agreements should focus on specific reference and acknowledgment.