Can an At-Will Employee Be Bound by a Pre-Dispute Resolution Agreement Contained Within a Non-Binding Employee Handbook?

Based on a recent decision from the Commercial Division in Westchester County (J. Scheinkman), the answer is yes.  The case of Graham, et al. v. Command Security Corporation was commenced as a class action by Richard Graham (“Graham”) on behalf of himself and all other security guards similarly situated against his former employer Command Security Corporation (“Command”).  Graham’s claims related to the alleged failure of Command to, inter alia, pay Graham and other security guards prevailing wages under New York Labor Law and other wage and hour law violations.  After Graham commenced the lawsuit in Supreme Court, Command filed a motion to stay the action in Supreme Court and compel arbitration based on Graham’s prior agreement to resolve any employment disputes by arbitration.

In support of its motion, Command argued that Graham was provided with an Employee Handbook at the time of hire and as part of the job offer.  The Employee Handbook contained, among other things, Command’s personnel policies.  Upon accepting the position with Command, Graham executed and acknowledged a Receipt of Personnel Policies in the Employee Handbook, including the Pre-Dispute Resolution Agreement, and returned the signed acknowledgment to Command.  The Pre-Dispute Resolution Agreement covered all matters directly or indirectly related to an employee’s recruitment, hire, employment or separation.  Importantly, the Pre-Dispute Resolution Agreement also provided Command with the option to require any dispute brought by an employee in Court to be heard through arbitration instead.  To exercise the option, Command was required to notify Graham within sixty (60) days of service of the complaint, which it did.

The issue to be decided by the Court was whether the parties actually entered into a valid agreement to arbitrate.  In opposition to the motion, Graham contended that there was no agreement because the Employee Handbook contained language stating that “employment is at will” and the “[Employee Handbook] does not create a contract with the Company for any purpose and the provisions of this Manual may be modified or eliminated at any time.”  Graham also argued that the agreement to arbitrate was unilaterally in favor of Command and not a reciprocal obligation.  Command, on the other hand, argued that, despite the non-binding nature of the Employee Handbook, the Pre-Dispute Resolution Agreement was enforceable because the language is distinct and mandatory and Graham’s executed acknowledgement confirmed his agreement.

The Court ultimately sided with Command. The Court, citing Thomson-CSF, S.A. v. American Arbitration Assn. 64 F.3d 773 (2d Cir 1995), noted that “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”  The movant attempting to compel arbitration has the burden to show a “clear and unequivocal” agreement to arbitrate the claim. Fiveco, Inc. v. Haber, 11 N.Y.3d 140, 144 (2008).

Here, the Court held that it could not be disputed that Graham signed the Pre-Dispute Resolution Procedure Employee Acknowledgement Form and, with no claim of fraud or other wrongful conduct, Graham is bound by what he signed. The Court noted that language in the Pre-Dispute Resolution Procedure section of the Employee Handbook specifically states: “In consideration of the Company’s offering and providing you with employment…[y]ou agree that the Company’s option to require arbitration is governed by the Federal Arbitration Act and is fully enforceable.”  Although the separate “Personnel Policies” Acknowledgement states that the Employee Handbook is not a contract, the Court held that the agreement to arbitrate became an enforceable agreement as soon as Graham signed the Pre-Dispute Resolution Procedure Acknowledgement Form.  Also, there was nothing in the “Personnel Policies” Acknowledgement that expressly or impliedly rescinded the agreement to arbitrate.

The Court also shot down Graham’s argument that the agreement to arbitrate was unenforceable because it was one-sided in that Graham would be required to arbitrate if a claim was brought by Command, but Command had the option to elect arbitration if Graham attempted to sue in Court. The Court held that the mutuality of remedies is not a requirement in an arbitration agreement and, as long as there is sufficient consideration, the agreement is valid.  The Court held that agreeing to arbitrate as a condition for hire constitutes sufficient consideration to render the arbitration agreement binding.

Overall, this case highlights some important issues that are showing up more frequently regarding terms and conditions that can be binding between employers and at-will employees.  Of course, how these documents/handbooks are drafted is vital.  For instance, the Court referred to another case cited by Graham, U.S. ex rel Harris v. EPS , Inc. 2006 WL 1348173 (D.Vt. 2006), in which the acknowledgment form signed by the employee contained stronger language and multiple disclaimers making it clear that the employee handbook at issue was not even “a legal document.”  Thus, in Harris, the Court found that neither the employee nor the employer had rights against the other with respect to the handbook.

It is always recommended to consult with an attorney either for drafting purposes or simply to review these documents, whether you are an employer providing a handbook to employees or an employee being asked to sign a particular document as a condition of new employment or continuing employment.