Arbitration Agreement In Employee Handbook Held Enforceable Despite Employee’s Failure To Read Handbook; Court Directs Unconscionable Provisions Severed

CATEGORY: Private Education Matters
CLIENT TYPE: Private Education
DATE: Dec 09, 2020

Hula Media Services, LLC. hired the Plaintiff in January 2017 and provided the Plaintiff a copy of the employee handbook.  The Plaintiff signed a receipt and acknowledgment of Hula Media’s employee handbook, which read:

“This is to acknowledge that I have received a copy of the Employee Handbook. This Handbook sets forth the terms and conditions of my employment as well as the rights, duties, responsibilities, and obligations of my employment with the Company. I understand and agree that it is my responsibility to read and familiarize myself with all of the provisions of the Handbook. I further understand and agree that I am bound by the provisions of the Handbook. [¶] I understand the Company has the right to amend, modify, rescind, delete, supplement or add to the provisions of this Handbook, as it deems appropriate from time to time in its sole and absolute discretion.”

In August and October 2017, the Plaintiff submitted written complaints alleging sexual harassment and retaliation by Hula Media’s chief executive officer.  In November 2017, Hula Media added an arbitration agreement to its employee handbook and distributed the revised version of the employee handbook to its employees.  The Plaintiff and the other employees of Hula Media each signed new receipt and acknowledgment forms with the above language.  In January 2018, Hula Media terminated the Plaintiff’s employment.

In August 2018, the Plaintiff sued Hula Media and its chief executive officer alleging six causes of action under the Fair Employment and Housing Act (FEHA), including sexual harassment, and failure to reimburse business expenses.  Citing the arbitration agreement in the employee handbook, Hula Media filed a motion to compel arbitration of the Plaintiff’s claims.  The Plaintiff opposed the motion and argued that he had not received a copy of the revised employee handbook and even if he had received a copy, he would never have known that Hula Media put an arbitration clause in it because Hula Media did not notify him of whether and how the employee handbook had been changed.

The trial court denied Hula Media’s motion to compel arbitration.  The trial court explained that the receipt and acknowledgment form the Plaintiff signed did not indicate that an arbitration agreement was added to the employee handbook or that the handbook was revised or added to at all.  The trial court further concluded that it was reasonable for the Plaintiff to assume the distribution of the employee handbook in November 2017 was nothing more than routine without any particular reason for the Plaintiff to read it again,.  The trial court noted it would be “fundamentally unfair to presume that [the Plaintiff] was aware of the arbitration clause.”

On appeal, Hula Media argued that the Plaintiff “demonstrated his assent to the arbitration clause by signing the acknowledgment of receipt of the employee handbook, and his failure to read the handbook before signing the acknowledgment did not render the arbitration clause unenforceable.”  Whereas, the Plaintiff argued he did not consent to the arbitration clause because Hula Media did not inform him that an arbitration clause had been added to the employee handbook.

The appeals court determined the evidence showed that the Plaintiff received the employee handbook in November 2017, had the opportunity to read the handbook, and signed the receipt and acknowledgment form.  Further, the court concluded that the language of the receipt and acknowledgment form clearly constituted a contract, and Hula Media had no obligation to point to the Plaintiff that an arbitration clause had been added to the employee handbook.  The court noted that

“[i]t has long been the rule in California that a party is bound by a contract even if he did not read the contract before signing it,” and that rule applies to all contracts, including arbitration agreements.

The Plaintiff further argued that the provisions of the employee handbook, including the arbitration agreement, were procedurally unconscionable, which is a contract defense that turns on “the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.”  The Plaintiff also argued that the arbitration agreement was substantively unconscionable, which is a contract defense that turns on the “fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.”

The appeals court concluded that there was some degree of procedural unconscionability in the employee handbook because it contained provisions that were non-negotiable conditions of the Plaintiff’s employment (i.e., the Plaintiff could not negotiate the handbook’s provisions and had no meaningful choice about its terms.)  The appeals court also concluded that the arbitration agreement contained elements that were substantively unconscionable because it contained a clause requiring each party to pay a pro-rata share of the arbitrator’s fees and costs and specified that the arbitrator would award attorney’s fees to the prevailing party, which both contradict express limitations set forth in the FEHA.

Nevertheless, the appeals court determined that the arbitration agreement could be fully mutual and enforceable if the arbitrator’s fees and costs and the attorney’s fees provisions were severed from the arbitration agreement.  Accordingly, the appeals court directed the trial court to sever these provisions from the arbitration agreement and grant Hula Media’s motion to compel the Plaintiff’s claims to arbitration.

Conyer v. Hula Media Services, LLC (2020) 53 Cal.App.5th 1189, review filed (Oct. 5, 2020).


A peripheral matter in this case is that employers may make midyear revisions and modifications to employee handbooks if the employee handbook itself reserves that right for the employer.  In doing so, however, employers should provide employees with a copy of or access to the revised or modified handbook and have employees sign a new receipt and acknowledgment form.

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