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Fourth Circuit Says Mandatory Arbitration Agreement in Employee Handbook is Unenforceable

    Client Alerts
  • December 14, 2015
Employers seeking to avoid disputes in court with employees increasingly seek to use mandatory arbitration agreements. Typically, these agreements take the form of stand-alone written documents, signed by both parties. However, in some cases employers attempt to impose mandatory arbitration obligations through other means, such as employee handbook or employment application provisions. Last month, the Fourth Circuit Court of Appeals (which includes North and South Carolina) rejected an employer’s attempt to impose mandatory arbitration through use of a handbook policy.

In Lorenzo v. Prime Communications, LP, the plaintiff sued a North Carolina employer for alleged wage and hour violations. The employer sought to compel arbitration, pointing to a mandatory arbitration provision in the employee handbook, and a signed acknowledgement of the handbook by the employee. The plaintiff contended that the arbitration agreement was unenforceable because of language in the handbook acknowledgement stating that the manual was not contractual in nature.

Employers in North Carolina and South Carolina routinely include such language in their employee handbooks in order to avoid claims for breach of contract when they do not follow their own policies to the letter. In this case however, the disclaimer of contractual status backfired, causing the Fourth Circuit to agree that the mandatory arbitration policy was similarly not binding on the parties.

The employer in this case could have easily avoided this problem by carving the arbitration policy out of its non-contractual handbook disclaimer acknowledgement. Employers may be better served by using separate, stand-alone mandatory arbitration agreements instead of incorporating them into documents with different legal purposes and status.