School Could Not Enforce An Arbitration Provision Contained in Employee Handbook

May 30, 2013

In a recent U.S. District Court for the District of Massachusetts case, the employer, a two-year, for-profit school that provided career education in health-related fields, moved to dismiss an employee’s complaint alleging Family and Medical Leave Act violations and compel arbitration based on a Dispute Resolution Policy (“Policy”) contained in the employer’s Employee Handbook (“Handbook”).  In denying the motion to dismiss, the Court concluded that the Policy was not enforceable because:  (1) the employer retained the ability to modify the terms of the Handbook unilaterally and without notice to employees; (2) the employer’s unilateral power to modify the Handbook extended to the Policy, which was an undifferentiated part of the Handbook; (3) any ambiguity in arbitration agreements (i.e., as to whether the employer retained the power to unilaterally modify the Policy) is to be resolved against its drafters.  In short, the Court found that “[T]he unilateral discretion to alter the terms of [the Policy], without having to notify plaintiff . . . makes any agreement, even if one existed, illusory and unenforceable.”

CLIENT TIP:  In order to increase the likelihood that a Massachusetts court would consider a document to be a binding agreement to arbitrate, the ADR provision should not be contained in an employee handbook that is subject to unilateral amendment by the employer.  Alternatively, if it is contained in an employee handbook, the ADR provision should be included as a discrete and differentiated agreement; not be subject to unilateral amendment; contain a clear statement that the employee has read and understood the terms of the ADR provision and agrees to be bound by its terms.