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Your Legal Corner - Client Alert Blog

Arbitration Clause in an Employee Handbook Held Unenforceable

Written By: Melissa C. Marsh, Esq., California Attorney, October 2012 Add to Favorites
On July 30, 2012 the California Court of Appeal rendered a decision invalidating an arbitration clause contained in an employee handbook.

In Sparks v. Vista Del Mar Child & Family Services, ___ Cal.App.4th ___ (2012), the Second District Court of Appeal affirmed the trial court's decision to deny the employer's petition to compel arbitration on two grounds: (1) the employee never agreed to arbitrate because the acknowledgement of the handbook signed by the employee merely stated that the employee agreed to "read and understand" the handbook, and did not specifically provide that the employee agreed to be bound by its terms; and (2) the arbitration provision buried in the employee handbook was unenforceable and void.

According to the court, the employer's right to unilaterally modify the employee handbook at any time made the arbitration agreement illusory and in turn void. The Court further stated that the arbitration clause was unconscionable because: (1) it was buried in the employee handbook; (2) it was not subject to negotiation; (3) the employer failed to give the employee a copy of the American Arbitration Association's ("AAA") procedural rules which would govern any resultant arbitration; and because (4) the AAA procedural rules give the arbitrator the sole discretion to deny discovery and the arbitration clause itself did not set forth an express provision providing any discovery rights.

At bottom, California employers who desire to have their employees arbitrate employment related claims should have their present arbitration agreements and/or clauses reviewed by counsel to ensure that they are properly written so as to be enforceable in light of the Court's ruling in Sparks. Employment related arbitration clauses should at the very least: (1) be presented in a stand alone agreement; (2) set forth an express clause providing for discovery; and (3) have the procedural rules of the forum (AAA, JAMS, Etc..) attached for the employee's review. In addition, any "no contract" language, or language authorizing the employer to unilaterally change its policies or terms, should explicitly state that this does not apply to any agreements to arbitrate.

Posted In: Employment Law News 

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.