Knowingly or Not? When Does an Employee Agree to Arbitrate?

26 May 2015 Labor & Employment Law Perspectives Blog

There was a time, not so long ago, when federal courts refused to enforce arbitration agreements in Title VII cases, rendering arbitration agreements in the employment context virtually meaningless. Then, in 1991, Congress amended Title VII to specifically allow arbitration of Title VII claims “where appropriate.” Since that amendment, courts have interpreted Title VII’s “where appropriate” language as requiring any agreement to arbitrate a Title VII claim be entered into by the employee “knowingly.” This, of course, immediately begs the question: What dictates whether an employee “knowingly” enters into an arbitration agreement?

The Court of Appeals for the Ninth Circuit (covering Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington, as well as Guam and the Mariana Islands) recently took on this question and opined on whether an arbitration agreement contained in a handbook was “knowingly” agreed to, based on the language contained in the handbook acknowledgement. The case involved an employee who, midway through his employment, signed a receipt of acknowledgment of the employer’s handbook. That receipt document contained language acknowledging the handbook included a dispute resolution policy. Specifically, the acknowledgment stated: “I acknowledge that I received directions as to how I may access [the company’s] Policy Manual, including the Dispute Resolution Policy … I understand that it is my responsibility to understand [the company’s] Policy Manual, including the Dispute Resolution Policy, and to adhere to all of the policies contained therein.”

Eventually, the employer terminated the employee, and he filed a lawsuit alleging retaliation in violation of Title VII. The employer sought to compel arbitration under the dispute resolution policy contained in the employee manual. The trial court refused to send the case to arbitration, finding that the employee did not knowingly agree to arbitrate his Title VII claim. The Ninth Circuit reversed that ruling, distinguishing this case from others where courts had refused to enforce arbitration agreements contained in employment manuals. The appellate court explained that in those previous cases, the handbook acknowledgment made no mention of the arbitration clause contained in the handbook. In the recent decision however, the Ninth Circuit highlighted the fact that the acknowledgment twice mentioned the company’s dispute resolution policy.

In the end, the recent case turned on the inclusion of a phrase in a handbook acknowledgement form. What employers can thus take away from the case is the lesson that companies with handbooks containing arbitration agreements should review the handbook acknowledgment to ensure it includes specific references to the arbitration provision.

However — and there is always a “however” — there is an important caveat to this conclusion. Employers should be aware that state courts, particularly in those states with their own discrimination statutes, very well may stray from this ruling and take a more employee-protective stance. In some jurisdictions, stand-alone arbitration agreements should be used in favor of including an arbitration agreement in a handbook, regardless of the acknowledgement language. Thus, we strongly advise employers to seek counsel from an employment lawyer before creating an arbitration agreement.

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