Duh! Employee Handbook's Arbitration Clause Cannot Be Enforceable If Handbook Explicitly Disclaims Being an Enforceable Contract.

 

Last week, the Hamilton County Court of Appeals reversed an employer’s motion to dismiss and compel arbitration because the arbitration “clause” was contained in an employee handbook, which specifically said that it was not a binding contract and was illusory since the employer could change the terms at any time without the employee’s assent.  Bauer v. River City Mtge., L.L.C., 2023-Ohio-3443. “Because the acknowledgement form disavowed any binding force and provided [the employer] with the authority to amend the employee manual at any time without notice to [the employee], we hold there was no meeting of the minds here. And absent mutual assent, the employee handbook was merely a unilateral statement of rules and policies which did not create any contractual obligation and rights.”

According to the Court’s opinion, the plaintiff employee signed the Handbook Acknowledgement, which explicitly stated that Handbook could be changed at any time at the employer’s discretion without notice and that it was not intended to form an implied or express contract.  One of the policies required employees to arbitrate any dispute with the employer.   The plaintiff filed suit after being fired, claiming that she had been subjected for years to discrimination and sexual harassment.  The employer moved to dismiss and compel arbitration based on the employee handbook.  The trial court dismissed the complaint due to the arbitration policy.

The appellate court reminded the parties that:

As in all contracts, express or implied, both parties must intend to be bound. Absent mutual assent, a handbook becomes merely a unilateral statement of rules and policies which create no obligation and rights.

The Court distinguished prior court decisions where the handbook acknowledgement specifically referenced the arbitration requirement and the employee’s consent to it.  Unlike those cases, the handbook acknowledgement in this case said nothing about mandatory arbitration; on the contrary, it referred only to how the handbook was not an enforceable contract.

Further, the employer’s reservation of rights to unilaterally modify the handbook policies without notice or consent rendered any such contract illusory. “Many courts have ‘found that permitting an employer to unilaterally amend or terminate an arbitration agreement without notice renders the agreement illusory.”’

Defendants rely heavily on Ohio’s strong policy favoring arbitration to argue the employee manual was a binding contract. But this policy is not triggered when a broad disclaimer of contractual obligations indicates the parties never agreed to arbitrate. Further, the presumption in favor of arbitration is useful in resolving ambiguities in the language of an arbitration provision. . . . .But here, no such ambiguities exist, as the acknowledgement form clearly and unequivocally disclaims any contractual obligations. Defendants’ reliance on Ohio’s strong policy favoring arbitration is therefore misplaced.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Good News and Bad News from the NLRB in October

It often seems like only crazy news has been coming out of the NLRB these days.   You know what I mean: employers being unable to require common courtesies from their employees or to prohibit them from defaming one another.  In a recent case, the divided NLRB ruled that it violates the NLRA to not promptly respond to a union request for irrelevant information.  However, the NLRB’s General Counsel took some action to reign in some of the craziness last month.  

Responding to Requests for Irrelevant Information.  First, bad news.  In late October, the NLRB ruled that an employer violated the NLRA when it took four months to tell a union in writing that its request for information about a non-union entity was irrelevant. Iron Tiger Logistics, 359 NLRB No. 13.  The ALJ and the union ultimately agreed with the employer that the requested information was irrelevant to the union’s duties as bargaining representative and the employer did not need to produce the information.  The union did not appeal that finding.   Nonetheless, the ALJ found that waiting four months – until after the ULP charge had been filed --  to put in writing that the union’s request was for irrelevant information violated the employer’s duty to bargain in good faith with the union.  As explained by the ALJ:

[A]n employer must respond to a union’s request for relevant information within a reasonable time, either by complying with it or by stating its reason for noncompliance within a reasonable period of time. Failure to make either response in a reasonable time is, by itself, a violation of Section 8(a)(5) and (1) of the Act. Some kind of response or reaction is mandatory. Columbia University, 298 NLRB 941, 945 (1990), citing Ellsworth Sheet Metal, 232 NLRB 109 (1977).

The NLRB agreed: “an employer must timely respond to a union request seeking relevant information even when the employer believes it has grounds for not providing the information.”   Accordingly, the employer in this case “was required to timely provide [the requested] information or to timely present the Union with its reasons for not doing so.”  The Board majority rejected the dissent’s argument --  that no prior cases had ever found a statutory violation when the employer was not required to respond to a request for irrelevant information --  because the requested information was “presumptively relevant.”

 

The question here is not whether the Respondent had a duty to provide the information sought by the Union, but rather whether it had a duty to respond to the Union’s request in a timely way.

Employment at Will Disclaimers.  Now, the “good” news. In the last year or so, the NLRB has taken the position that employee handbook provisions – for both union and non-union employers -- violate the NLRA if they “explicitly prohibit NLRA-protected union or concerted activity, such as joining a union or discussing terms and conditions of employment with coworkers. Even if not explicit, a rule can be unlawful if employees would reasonably construe the language to prohibit such activity.”  It’s the “reasonably construe” language which has generated derision because there has been nothing reasonable about some of the construction being done.   The NLRB General Counsel has advised that:  

Rules that are ambiguous as to their application to Section 7 activity, and contain no limiting language or context that would clarify to employees that the rule does not restrict Section 7 rights, are unlawful.  In contrast, rules that clarify and restrict their scope by including examples of clearly illegal or unprotected conduct, such that they could not reasonably be construed to cover protected activity, are not unlawful.

 In February, an ALJ ruled that it violated the NRLA for a Red Cross employee handbook in Arizona to contain an employment-at-will disclaimer which provided, among other things, that ““I further agree that the at-will employment relationship cannot be amended, modified or altered in any way.”   According to the ALJ,

 

there is no doubt that “employees would reasonably construe the language to prohibit Section 7 activity . . . the signing of the acknowledgement form is essentially a waiver in which an employee agrees that his/her at-will status cannot change, thereby relinquishing his/her right to advocate concertedly,  whether represented by a union or not, to change his/her at-will status. For all practical purposes, the clause in question premises employment on an employee’s agreement not to enter into any contract, to make any efforts, or to engage in conduct that could result in union representation and in a collective-bargaining agreement, which would amend, modify, or alter the at-will relationship. Clearly such a clause would reasonably chill employees who were interested in exercising their Section 7 rights.

The employer settled the case rather than appeal it to the NLRB. 

 Employment at will disclaimers are standard in order to explain to employees that they do not have a contractual right to a job for a definite period of time unless certain contingencies are satisfied (like, for instance, a contract signed by the CEO or Board President, etc.).  Without the disclaimer, employers often found themselves being sued by terminated employees claiming that their discharge was unfair and they had been orally promised lifetime employment, etc.  Fortunately, the bad press generated by this ALJ decision and settlement woke up the NLRB General Counsel’s office, which published a memorandum requiring “all Regional Offices to submit cases involving employer handbook at-will provisions to the Division of Advice for further analysis and coordination”  purportedly  “because Board law in this area remains unsettled.”

The General Counsel also publicized that most employment at-will disclaimers do not violate the NLRA. Merely highlighting that “that the employer’s representatives are not authorized to change” the employees’ employment at will relationship does not violate the NLRA.   In particular, the General Counsel specifically approved the employee handbook used by two employers:

·        Employment with Rocha Transportation is employment at-will. Employment at-will may be terminated with or without cause and with or without notice at any time by the employee or the Company. Nothing in this Handbook or in any document or statement shall limit the right to terminate employment at-will. No manager, supervisor, or employee of Rocha Transportation has any authority to enter into an agreement for employment for any specified period of time or to make an agreement for employment other than at-will. Only the president of the Company has the authority to make any such agreement and then only in writing.

·        The relationship between you and Mimi's Cafe is referred to as employment at will." This means that your employment can be terminated at any time for any reason, with or without cause, with or without notice, by you or the Company. No representative of the Company has authority to enter into any agreement contrary to the foregoing "employment at will" relationship. Nothing contained in this handbook creates an express or implied contract of employment.

 The General Counsel acknowledges the utility of the employment at will disclaimers and their prior approval by the Board and courts:

 

It is commonplace for employers to rely on policy provisions such as those at issue here as a defense against potential legal actions by employees asserting that the employee handbook creates an enforceable employment contract. See NLRB v. Ace Comb Co., 342 F.2d 841, 847 (8th Cir. 1965) ("It must be remembered that it is not the purpose of the Act to give the Board any control whatsoever over an employer's policies, including his policies concerning tenure of employment, and that an employer may hire and fire at will for any reason whatsoever, or for no reason, so long as the motivation is not violative of the Act"); Aeon Precision Company, 239 NLRB 60, 63 (1978) (same); Aileen, Inc., 218 NLRB 1419, 1422 (1975) (same).

Accordingly, it rejected the argument that the NLRA was violated by a handbook which provided that no representative had authority to modify the employment at will relationship as long as the disclaimer and/or signed acknowledgement “does not require employees to refrain from seeking to change their at-will status or to agree that their at-will status cannot be changed in any way.”  Notably, the NLRB General Counsel’s office is still taking the position that it could violate the NLRA for an employee handbook provision to “require employees to refrain from seeking to change their at-will status or to agree that their at-will status cannot be changed in any way.” 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Ohio Appeals Court: Employee Handbook is Not a Binding Non-compete Agreement.

Last month, the Lake County Court of Appeals affirmed the dismissal of a fraud lawsuit brought by an employer against an employee after the plaintiff-employer incurred substantial litigation expenses in an earlier case brought by the employee’s former employer. Freedom Steel, Inc. v. Rorabaugh, 2008-Ohio-1330 (3/21/08). The employee salesperson left his long-time employer and was hired by the plaintiff-employer after assuring it that he had never signed a non-competition agreement with his long-time employer. However, he did not inform the plaintiff-employer that he had signed an employee handbook acknowledgment because it was not a non-compete agreement and he did not think that handbook’s non-competition provision was enforceable. The court ultimately ruled that the employee was correct.

When the employee resigned his long-time employment, he did not reveal the identity of his new employer. When the long-time employer asked him to not call on any of their customers, he responded that he did not have a non-compete and would do what he had to do to get and keep a job. In response, the long-time promised that it would sue him if he competed against it.

Not surprisingly, the employee generated sales by means of his prior customer relationships. In “March of 2005, [the employee] was served with a lawsuit filed by [his long-time employer] in Summit County. In the complaint, [the long-time employer] alleged violations of Ohio's Trade Secrets Act, interference with contractual business relations, conversion, and breach of contract. Shortly after being served, [the employee] notified [the plaintiff-employer] of the pending lawsuit [and was] questioned . . . again regarding whether he had signed anything "that would drag us into a lawsuit." [The employee] again denied signing such a document insisting "I will prove it to you, and you're going to apologize to me ***." Based on these assurances, the plaintiff-employer did not fire the employee at that time.

“Eventually, however, [the plaintiff-employer] was served with a subpoena from [the long-time employer] seeking disclosure of . . . . the names of ‘customers, where they are located, their addresses, who they are, what they buy, what you're selling them price wise, everything about the customers, it's an open book in other words.’ [The plaintiff-employer] fought the subpoena by filing a motion for protective order; however, the trial court overruled the motion. The trial court rendered the ruling a final appealable order and appellant subsequently filed an appeal with the . . . Court of Appeals. Before the appeal was heard,” the employee settled the lawsuit with his long-time employer.

On April 4, 2006, after the dismissal, [the plaintiff-employer] filed suit against [the employee] in the Lake County Court of Common Pleas alleging fraud. [The plaintiff-employer] asserted [the employee] defrauded [the plaintiff-employer] by concealing relevant information regarding his past employment which caused it to expend over $18,000.00 in attorney's fees to defend against the subpoena issued by [the long-time employer] in the Summit County case. . . . In February of 2007, the matter proceeded to jury trial. After deliberating, the jury returned a verdict” in favor of the employee.

During the trial, the trial court had instructed the jury that as a matter of law the employee handbook signed by the employee was not a binding non-compete or trade secrets agreement. Therefore, the employee had truthfully denied ever signing a non-compete agreement. On appeal, the Court of Appeals agreed that the employee handbook could NOT constitute a binding contract because the Acknowledgment page signed by the employee contained the following disclaimer:

"NOTHING CONTAINED IN THIS HANDBOOK IS INTENDED AS A CONTRACT AND THE POLICIES, RULES AND BENEFITS DESCRIBED IN IT ARE SUBJECT TO CHANGE AT THE SOLE DISCRETION OF FAMOUS ENTERPRISES WITHOUT NOTICE AT ANY TIME."

“Although the document indicates, by signing the receipt, [the employee] agreed to be bound by the statements contained within it, the document does not mention and thus does not bind [the employee] (or any acknowledging employee) to a non-compete clause. Moreover, although the document indicates that, by signing the document, [the employee] would not disseminate or use confidential information "CRITICAL TO THE SUCCESS OF FAMOUS ENTERPRISES" (emphasis sic), it does not use the term nor set forth any general trade secrets any current or past employee must not publish. The document merely states that confidential information, e.g., customer lists, pricing policies or other sensitive information, shall not be disseminated or used "OUTSIDE OF COMPANY PREMISES." As this statement appears in an employee handbook and, moreover, is vague as to what it specifically relates, it is reasonable to conclude that it simply reflects a policy requiring current and past employees not to disclose the information it stipulates as confidential.”

Not discussed by the Court is the fact that the plaintiff-employer likely would have been subpoenaed regardless of the arguable existence of a non-compete agreement because the trade secrets claim does not require the existence of an underlying breach of contract. However, the court of appeals incorrectly noted in a footnote that the use of the customer information from memory (as opposed to taking a list) was not actionable under Ohio's Trade Secret Act. (This issue was previously the subject of an earlier Ohio Supreme Court opinion on February 6, 2008 in Al Minor & Assoc., Inc. v. Martin, 2008-Ohio-292).

Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/11/2008/2008-ohio-1330.pdf .

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.