Most large employers have employee handbooks, those set of policies that explain things like vacation and sick leave, discipline, etc. Employers will often describe how they are “binding” and must be followed. But, legally, they are not binding, at all. They look thorough and professional and provide some comfort to employees in an uncertain world.

They are generally not binding on the employer. They are nothing more than a guideline.  If the employer included a phrase providing they are not contractual, then they will not be binding. And, most, perhaps all employers do include non-binding type language in the handbook.

In Carey v. 24 Hour Fitness, USA, Inc., No. 10-20945, (5th Cir. 1/25/12),we have another caes regarding an arbitration clause in an employee handbook.  But, this time, the court of appeals found that the arbitration clause was not binding. The cause prohibited entering into any class actions based on the Fair Labor Standards act.  The employee, John Carey, however, did enter into an FLSA class action. 24 Hour Fitness sought to stay the class action and force arbitration.  The district court denied the stay and found the arbitration agreement to be illusory.  The Fifth Circuit sustained the lower court.

Under Texas contract law, an agreement which allows one party to unilaterally make changes to the agreement retroactively is considered illusory.  Such an agreement is not a genuine agreement.  In this case, the Fifth Circuit found that 24 Hour Fitness retained the right to amend the employee handbook, including the arbitration clause, at any time with no limit.  The court fiound the 24 Hour Fitness arbitration agreement different from that in other cases, in which the handbook was subject to change, but not if any complaint had already been lodged. 

The arbitration agreement in the 24 Hour Fitness case allowed the employer to "revise, delete, and add to" the employee handbook at any time.  There was no limit on its ability to do so.  the agreement, thus, applied to the employee but allowed the employer to slip out of it if it chose.  This failure to make the agreement truly binding rendered the agreement "illusory,: said the court.

24 Hour Fitness argued that it did not have an express ability to make changes retroactively.  But, noted the court, Texas law presumes retroactive application if the agreement is silent on the subject.  See the opinion here

The Fifth Circuit has overruled similar arguments made here by the plaintiff in other cases.  It seems that the law of arbitration agreements is still evolving. 

This decision also reflects the challenge of using employee handbooks.  Employee handbooks benefit employers because they prescribe procedures for counseling or terminating employees.  Such procedures make it far easier for employers to win claims for unemployment benefits.  But, employee handbooks can become contracts – meaning the failure to follow discipline procedures in the book may give rise to breach of contract claims by an employee.  The employer then responds with clauses providing that the employee handbook is not a contract and can be changed at any time.  So, how does the employer insert an arbitration clause without making the rest of the handbook a contract?  This decision suggests that the employer should at least make it clear that it can change the handbook, but such changes would not apply to any pending claims of discrimination or FLSA violations. 

But, in the end, it is hard to eat your cake and eat it too.  There are limits to how much we can squeeze into any one contract. 

In a recent decision, the US Sixth Circuit Court of Appeals found that an arbitration policy referenced in an employee handbook was not binding on the employee.  In Hergenreder v. Bickford Senior Living Group, LLC, No. 10-1474 (6th Cir. 6/8/2011), the employee was a nurse who suffered from cancer shortly after starting to work for Bickford.  She attempted to sue after she was terminated.  The employer claimed the arbitration policy applied and the federal district court agreed.  But, now the appellate court has reversed and has allowed Ms. Hergenreder’s case to proceed. See decision.  

The purported arbitration clause was contained in a dispute resolution clause.  In one brief sentence, the employee handbook said there was a dispute resolution clause and the employee should look at it sometime.  The employee handbook itself never mentioned arbitration.  The dispute resolution policy did indeed include an arbitration agreement.  The policy stated that agreement to the dispute resolution clause was a condition of employment.  But, found the Sixth Circuit, the employee nowhere acknowledged that she had been notified of the contents of the dispute resolution clause.  The employer could not show that the employee was aware of the policy or that she had agreed to it in any way. 

And, of course, like many employee handbooks, it contained language stating that the handbook was not contractual.  As Workplace Prof points out, many employers want the contractual benefits of a binding arbitration agreement.  The handbook appeals to employees because it provides a predictable, understandable framework for their employment relationship.  But, a binding employee handbook would present many problems for an employer.  So, they seek to avoid any contractual aspects.  See Workplace Prof blog.  It is hard to have your cake and eat it too….

Arbitration clauses are everywhere, from employee handbooks to automobile purchases to purchases of electronics.  Now, we even find arbitration clauses posted on the front door of a Whataburger.   See post.   The "American Mediation Association" mentioned in the post is actually a Dallas law firm.  

As Workplace Prof mentions, one day we will surely see arbitration clauses on grocery store receipts…..