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School can’t enforce mandatory arbitration provision

An employer could not enforce a mandatory arbitration provision included in its handbook to block a lawsuit by an employee who claimed she suffered retaliation after requesting maternity leave under the Family and Medical Leave Act, a U.S. District Court judge has decided.

The employee argued that the handbook did not constitute a contract because the employer retained the unilateral right to modify it without notice. Thus, she contended, the “dispute resolution policy” in the handbook was not legally binding either.

Judge F. Dennis Saylor IV agreed.

“[The defendants] retained the ability to modify the terms of the handbook at their discretion, without notice to the plaintiff,” Saylor wrote, denying the defendant employer’s motion to compel arbitration.

“Because the dispute resolution policy was a subsection of the handbook, the power to modify terms also applied to the dispute resolution policy,” he said. “Defendants thus had the power to require plaintiff to arbitrate the covered dispute, while simultaneously reserving the right to modify the agreement. Such an agreement is not enforceable.”

The 12-page decision is Domenichetti v. The Salter School, LLC, et al.

‘Hogs get slaughtered’

Plaintiff’s counsel Chip Muller of Providence, R.I., said the ruling sends a clear message to employers that if they want to enforce arbitration agreements, they need to pull them out of their employee handbooks and make them separate, mutually binding contracts.

“I think employers are trying to balance two interests here,” said Muller, who is also licensed in Massachusetts. “They want to remain free from any contractual obligations to provide specific rights and benefits in their handbook, and at the same time they want to get contractual obligations [on the part of the employee] from the handbook.”

That should not be an insurmountable problem, he said. Employers simply can be clear as to what is and is not part of an agreement.

In the end, Muller said, Saylor’s ruling is neither pro-employee nor pro-employer. “It’s simply a pro-contract clarity decision.”

Evan M. Fray-Witzer, a management-side employment lawyer in Boston, described the case as a “pigs get fat and hogs get slaughtered” scenario.

“The most surprising thing about this decision is not the way it came out, but that there seem to be so many employers who still fall into the lose-lose trap of setting out crucial employment policies only in their handbooks, while including prefaces that say the handbook doesn’t create a contractual obligation,” Fray-Witzer said.

That almost always backfires, Fray-Witzer added, explaining that if the employee wants to enforce the terms of the handbook, he can, and when the employee wants to avoid the handbook’s terms, he can do that as well, which is what happened in Domenichetti.

 

In order to prevent such a situation, Fray-Witzer echoed Muller’s advice that employers distribute policies they want to enforce as mutually binding standalone policies, which the employee must acknowledge, sign and return. Alternatively, the employer can clearly state, in drafting the handbook, that all provisions are enforceable as a contract.

“What never works, though, is writing a handbook that essentially says, ‘This is kind of enforceable when we feel like it and kind of not when we don’t,’” he said.

Christopher P. Flanagan of Wilson, Elser, Moskowitz, Edelman in Boston represented the employer. He could not be reached for comment prior to deadline.

Dispute resolution policy

Plaintiff Victoria Domenichetti started working for the defendant, a two-year for-profit career-training school in Fall River, Mass., known as the Salter School, on Jan. 10, 2011.

As an externship coordinator, the plaintiff was responsible for placing students in on-the-job settings to gain practical skills.

The plaintiff received an employee handbook on her first day articulating various company policies. Included was a statement that nothing inside constituted a promise or guarantee as to the terms and conditions of employment. The employer also maintained the authority to alter the policies at its own discretion.

Additionally, the handbook contained a “dispute resolution policy” stating that any disputes between the employee and employer — including claims of discrimination — would be decided by binding arbitration.

The dispute resolution policy did not have its own signature line, nor was it ever presented as a separate document. Instead, the plaintiff signed a general acknowledgement that she received the handbook and was aware of its policies.

On May 12, 2012, the plaintiff informed the employer’s human resources director that she was pregnant and requested information on its maternity-leave policy. On June 13, she submitted a request to take time off under the FMLA to care for her newborn.

According to the plaintiff, who apparently received positive performance reviews, a less experienced peer of hers was promoted to director of career services later that same day. Then, on June 18, the plaintiff allegedly learned she was being demoted to a part-time position, resulting in reduced benefits.

The following month the plaintiff sued the school, its parent company and its president in U.S. District Court, alleging that they unlawfully retaliated against her for requesting maternity leave.

The defendants moved to compel arbitration pursuant to the dispute resolution provision in the employee handbook.

Unenforceable provision

Saylor rejected the defendants’ argument that though the handbook itself was not a contract, the dispute resolution policy in it was a separate and distinct binding agreement.

First, the judge said, the policy had headings similar to all other sections of the handbook, and the company appeared to place no particular emphasis — such as a separate employee signature line — on the policy.

Additionally, he said, the policy appeared within the body of the handbook, before the receipt and acknowledgement page, unlike other policies — such as the conflict of interest and alcohol abuse policies — which appeared in a different format after the receipt and acknowledgement page, arguably making them distinct.

“At best, therefore, it is ambiguous whether defendants intended that the reservation of the right to modify the contract applied to the entire handbook, or the entire handbook with the exception of the dispute resolution policy,” Saylor said.

Since ambiguities in arbitration agreements must be construed against their drafters, Saylor interpreted the handbook as granting the defendants the unilateral discretion to alter the terms of the dispute resolution policy without having to notify the plaintiff.

“Such discretion makes any agreement, if one even existed, illusory and unenforceable,” Saylor concluded, denying the defendants’ motion to compel arbitration.

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