Is It Time to Update Your Employee Handbook? Conflicting Provisions Can Spell Doom in Litigation

As highlighted in a recent federal court decision, New Jersey employers should review their employee handbooks carefully to ensure that none of the provisions conflict.

One company learned this lesson the hard way when attempting to enforce an arbitration clause against a former employee alleging discrimination.

While the handbook required employees to submit employment-related claims to arbitration, it also stated that the handbook did not create any terms or conditions of employment and that the employer could modify the terms at any time. Given the apparent conflict, the court refused to compel arbitration.

The Facts of the Case

Raymours Furniture Company v. Rossi involved claims of retaliation, discrimination, and constructive-discharge filed by Sandra Rossi against her employer, Raymours Furniture Company. The primary question before the court was whether there was an enforceable arbitration agreement between the parties.

In 2012, the employer amended its employee handbook to implement an Arbitration Program, which required employees to submit to final and binding arbitration any and all employment-related claims. The language of the Arbitration Program provides, “This Program is an essential element of your continued employment relationship with Raymour & Flanigan and is a condition of your employment.” Rossi acknowledged receipt and review of the updated handbook.

After receiving notice of Rossi’s suit, Raymours sought to compel arbitration based on the handbook provision.

The Court’s Decision

Under New Jersey law, an arbitration agreement “must reflect that an employee has agreed clearly and unambiguously to arbitrate the disputed claim. Generally, [the court] determine[s] a written agreement’s validity by considering the intentions of the parties as reflected in the four corners of the written instrument.” Reading the handbook as a whole, the court concluded that there was no enforceable arbitration agreement between the parties in this case.

As explained by the court, “the Handbook here contains provisions that are confusing and contradictory. Plaintiff on the first page of the Handbook disclaims any intent to be bound by the provisions therein, then over 50 pages later identifies a provision it now intends to be enforceable as an arbitration agreement.”

Page one of the handbook clearly stated: “Nothing in this Handbook, or any other Company practice or communication or document, including benefit plan descriptions, creates a promise of continued employment, employment contract, term or obligation of any kind on the part of the Company.”

The court also rejected the argument that the specific provisions regarding arbitration should trump the handbook’s general at-will disclaimer. “None of the communications from Plaintiff to Defendant ensured she understood that the Arbitration Program was distinct from the non-binding provisions of the Handbook,” the court stated.

Finally, the court also found that the Arbitration Program was unenforceable for lack of mutuality of obligation, noting that the first page of the handbook also states that “Raymour & Flanigan reserves the right to change or modify Company rules, policies, practices and procedures, as well as the contents of this Handbook at any time with or without advance notice and at its sole discretion.”

As explained by the court, “[it] will not compel arbitration based on a provision Plaintiff may invoke, modify, or ignore at its sole discretion without notice to and agreement by Defendant.”

The Message for New Jersey Employers

The court’s decision makes it clear that employers can’t have it both ways, meaning that handbooks cannot contain language seeking to bind employees to certain obligations, while also reserving the right for the employer not to be held accountable by the handbook’s terms. Should businesses seek to require employees to submit to arbitration or establish another condition of employment, they must do so via an enforceable agreement.

If you have any questions about this case or would like to discuss your company’s employee handbook, please contact me, Donald Pepe, or the Scarinci Hollenbeck attorney with whom you work.