Opinion of Wisconsin District Judge Again Illustrates that Arbitration Is a Creature of Contract

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In deciding a reoccurring issue, Judge James D. Peterson of the Western District of Wisconsin found no valid arbitration agreement existed, because of a disclaimer in a 48-page employee handbook. See O’Bryan v. Pember Companies, Inc., Case No. 20-cv-664jdp, 2021 U.S. Dist. LEXIS 88300 (N.D. Wisc. May 10, 2021).

In O’Bryan, an employee of Pember Companies Inc. brought a proposed class and collective action under the Fair Labor Standards Act and Wisconsin law for unpaid wages. Pember responded with a motion to compel arbitration based on a dispute resolution procedure contained in its handbook, which provides:

I agree that all problems, claims and disputes experienced by me or Pember . . . related to my employment shall be resolved as outlined below. I agree to submit all such disputes to final and binding arbitration. Arbitration shall be the sole and exclusive forum and remedy for all covered disputes of either Pember . . . or me. (Emphasis added.)

The dispute resolution policy limited employees to individual claims and not class or collective actions. Further, the policy declared that it is “binding” and provided that the employee has read the entire provision and understands its restrictions and that the provision can only be revised by Pember’s president. But the handbook did not conclude with that language but also contained an employee acknowledgment form on its last page, which O’Bryan signed. That form, however, created enforcement problems for the dispute-resolution policy despite its seemingly straightforward language.

The bolded text of the acknowledgment form seemed to undo any agreement to arbitrate. It declared in pertinent part:

Unless I have an individual written employment contract, my employment relationship with Pember . . . is at will.***

I acknowledge that this handbook is neither a contract of employment nor a legal document. (Emphasis added.) 

The court labored to determine “which statement should control” – the handbook’s statement that the arbitration provision was “binding” or the acknowledgment’s contract disclaimer. Indeed, the scope of the disclaimer troubled the court. The disclaimer did not merely say the handbook was not an employment contract but instead declared it was not “a legal document.” And the phrase’s plain meaning, according to the court, was “that the handbook created no enforceable right for either Pember or its employees.”

The “strongest case” cited by Pember was Patterson v. Raymours Furniture Co., Inc., 96 F. Supp. 3d 71, 74 (S.D.N.Y. 2015). While the court in Patterson ordered arbitration based on a handbook arbitration provision with a disclaimer that stated it was “not promissory or contractual in nature,” it was distinguishable. The Patterson arbitration provision informed the employee that it was a condition of continued employment, but the court identified no similar language in the Pember agreement.

Based on this detailed analysis, Judge Peterson concluded, “Pember could easily have had its employees enter binding arbitration agreements, if that were the intent, but the broad concluding disclaimer renders the handbook a mere advisal of Pember’s current policies.”

Key Takeaways:

While the outcome is clearly not what Pember sought, there are some key takeaways for employers, which we have previously discussed in blog articles:

  • If possible, arbitration agreements should be stand-alone documents, not part of a handbook that states it is not a contract or legal document.
  • Consider having arbitration agreements executed manually or electronically by the applicant or employee involved and separate from any other company documents.
  • As with Pember, the arbitration agreement generally should be mutual, covering both parties; also, both parties should be entitled to injunctive or equitable relief from courts in support of the arbitral proceeding.
  • Finally, arbitration agreements should state whether they can be amended or revised, how it may be done, and the lack of impact of any changes on pending or accrued claims.

Addressing these issues should aid enforceability of the arbitration agreement.

Bottom Line:

Having an arbitration provision in a handbook with a broad contract disclaimer may prevent its enforcement.

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