More Than Meets the Eye: TN Court Finds Arbitration Agreement in Employee Handbook Non-Binding

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Excuse the eye patch, as I just had retina surgery yesterday. I am surprised at how different the world looks with only one eye to focus—from the depth of the stairway, to the water flowing from the sink, to the words flying out from the computer screen. In other words, there is more than meets the eye, a problem that many employers and employees face when a dispute arises.

In Mankin Media Systems, Inv. v. Timothy Crowder, No. 19CV-48300W (Jun. 30, 2022), the Court of Appeals of Tennessee reversed the confirmation of an arbitration award because the so-called arbitration clause appeared in the employee handbook and was not a stand-alone agreement. Because the handbook did not constitute an enforceable employment contract, the appellate court concluded that the trial court erred in ordering the parties to arbitrate in the first instance and later in affirming the arbitrator’s award.

The employer in Mankin hired the employee as a salesperson, a position that gave the employee access to certain confidential and proprietary information. At the time of hire, the employee signed an acknowledgement of receipt of the employee handbook, which contained an arbitration clause. The handbook expressly negated any contract of employment:

  • “. . . the Employee Handbook is not an employment contract, and nothing in this Employee Handbook gives an employee any right, express or implied, to continue employment.”
  • “[A]ll terms, conditions, policies, and procedures as stated in this document are subject to change, and nothing stated herein is guaranteed to remain a fixed term or condition of your employment.”
  • “Nothing in this employee Handbook creates a binding employment contract between Company and its employees or provides a guaranty of continued employment for any amount of time.”

When the employee left, he allegedly downloaded from his computer and took certain confidential information. The employer filed suit against the former employee in state court, and the employee filed a motion to dismiss based upon the arbitration clause in the employee handbook. The trial court denied the motion to dismiss, but stayed the lawsuit and ordered the parties to arbitrate.

Following an arbitration hearing, the arbitrator denied the employer’s request for damages and entered a final award in favor of the employee. The employer filed a motion to vacate the award, arguing that the arbitrator exceeded its authority. The trial court granted the employee’s motion to confirm the award.

The court of appeals reversed the trial court, holding that the employee handbook was not a valid and enforceable contract:

As set out above, the Handbook clearly states that it is not intended to be a contract, and further states that the provisions therein are subject to unilateral change without the employee’s consent. Therefore, under the foregoing authority, we conclude that the Handbook does not constitute a valid, enforceable contract between the parties.

Although the trial court ultimately concluded that the Handbook was not a valid employment contract, it nonetheless enforced the arbitration provision of the Handbook. This was error. In the absence of a valid contract requiring arbitration, there was no basis for the trial court to order the parties to arbitrate. Rather, the lawsuit was subject to adjudication by the trial court and should not have been decided by arbitration.

Lessons learned. There are a couple of lessons from the Mankin decision. First, there is always more than meets the eye. In what would appear to be a clear and express indication by the parties to arbitrate their dispute, the writing may not be enforceable if not part of an enforceable contract. Second, and you have seen these words before on this blog, words matter. Parties to a construction contract need to make sure that there are no conflicting provisions and they pay special attention to the arbitration provisions if they intend to arbitrate disputes. In this case, the employer seemed to want to arbitrate employment disputes by including such a provision in its employee handbook, but later wanted to litigate disputes.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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