Binding Employment Policies & Agreements in the Digital Age
Going electronic with employment policies and agreements requires more than just going electronic to make them binding.
A decision out of the Eighth Circuit is causing employers to reexamine their use of electronic arbitration agreements and other employment agreements. In Shockley v. PrimeLending, the Court found the employer had failed to form a binding arbitration agreement with its employee, despite the fact that the employer established that the employee had accessed its handbook containing the arbitration provisions on multiple occasions and acknowledged her review of it. The court’s holding is a valuable reminder of the importance of offer and acceptance in an age of online HR systems. It also applies to policies and agreements like restrictive covenant agreements, confidentiality agreements, and policies.
Historically, getting hired meant a large stack of paper policies, and agreements the employee was required to execute, acknowledge and return to HR. As employers modernize their HR structure with portals, intranets, and shared drives, company policies and employee agreements have gone online. While this gives more flexibility for updating policies and eliminates the need to physically store signed documents, there is a risk that employers are sacrificing enforceability. The different methods companies use to distribute policies and agreements do not always mean there has been a valid offer and acceptance, A disaster when you discover the “agreements” relied on are useless.
In Shockley, an employer was hoping to avoid costly litigation a mandatory pre-dispute arbitration agreement. As of late 2017, more than half of all non-unionized workers in U.S. companies were subject to arbitration agreements. Employer use of arbitration clauses has spiked sharply since the Supreme Court’s May 2018 decision where it rejected a challenge to mandatory class-action waivers in individual arbitration agreements.
Given the move towards mandatory arbitration and the distribution by employers of these agreements online, the Shockley decision is a reminder that enforcement of their arbitration provision is not guaranteed. The company had an internal computer network accessible by employees which contained employment-related information and policies. Its handbook said any disputes between employer and employee would be resolved through final and binding arbitration, and that both parties waived their right to jury trial or in a court. The Handbook also included a provision which said any disputes or claims relating to the interpretation, applicability, enforceability or formation of the arbitration provisions would be decided by an arbitrator.
A former employee sued alleging violations of the Fair Labor Standards Act. The company moved to compel arbitration based on the online arbitration provision in its Handbook. It provided undisputed evidence that the employee accessed the section of the internal network containing the Handbook and clicked on the Handbook itself, which generated an automatic acknowledgment of review. It established the employee went through this process twice. Each time she was specifically advised that by entering the internal system she acknowledged her review of these materials. When clicking on the Handbook, she was also presented with an opportunity to review the full text of the Handbook.
Despite this evidence, the district court found the employer had not shown the employee had actually accepted the arbitration and delegation provisions of the Handbook, and therefore there was no enforceable agreement to arbitrate any disputes. The court also held that because the arbitration language was contained in an employee handbook that could be unilaterally modified at any time, this was not a valid offer under contract law.
On appeal, the court focused on the acceptance part of the lower court’s ruling and agreed that a mere continuation of employment was not consent to the arbitration provisions, because her offer of employment was not explicitly conditioned on her review and acceptance. The court pointed out that there was no evidence that Shockley had ever reviewed the full text of the Handbook, and therefore no evidence that she had actually seen the arbitration language. Even assuming the employee had reviewed the language, the automatically-generated acknowledgment was not assent or acceptance because an acknowledgment of a review of offered terms alone does not evince an intent to accept those terms. As such, the Court held that the arbitration provisions were not an enforceable agreement and rejected the employer’s appeal.
This is not the only case where courts have found an employer’s online arbitration provisions invalid. In another case, an employer e-mailed its employees about a new dispute resolution policy. The email described the policy, identifying the last step as arbitration by a qualified and independent arbitrator. The email urged the employees to review the enclosed materials since the policy was an essential element of the employment relationship. The email also included links to a two-page brochure describing the dispute resolution policy, and to the full text of the policy, which the company also posted to its intranet. The brochure told employees that continued employment would mean they would be covered by the policy’s terms. The brochure also said that the arbitration policy was the exclusive means of resolving workplace disputes and that the company would compel arbitration in response to any lawsuits.
When a former employee brought a claim against the company under the Americans with Disabilities Act, the company moved for arbitration. The district court held that the e-mail notification, without more, was not the minimum level of notice required to enforce an agreement to arbitrate. Because the plaintiff lacked knowledge of the employer’s offer, his continued employment was not the required assent.
On appeal, the court disagreed with the lower court’s blanket disapproval of email as a method of notification, but found the e-mail inadequate because it did not include (1) the actual text of the policy, (2) a statement that the policy included a waiver of the right to access a judicial forum, or (3) any statement that the agreement to arbitrate would become binding upon continued employment. In addition, the email did not require acknowledgement of receipt and the company did not record whether its employees actually reviewed the policy or brochure. Thus, the company had not sufficiently established assent to the arbitration agreement.
Not all courts have come out so harshly against companies looking to enforce arbitration agreements. In a case decided just after Shockley, the Seventh Circuit compelled arbitration where an individual sued his former employer for defamation and discrimination and retaliation in violation of the Uniformed Services Employment and Reemployment Rights Act. When the employee was hired, the company’s dispute resolution policy did not require arbitration of discrimination claims, but the company later e-mailed all employees that the arbitration program was being amended and that employees must affirmatively opt out within 30 days if they did not want to be subject to the agreement. The email included links to the new arbitration agreement, a guidebook on the policy, a link to the opt-out form, and a statement that if the employee did not opt out, continued employment would be agreement.
The Court compelled arbitration even though there was no proof the plaintiff had ever actually read the email. The Court noted the prior version of the dispute resolution program said its terms were subject to change with notice which required the employee to keep up with changes. Also, the email itself said employees must individually opt out of the policy. The Court also said the employment included regular email communication which justified the employer’s expectation of a reply and its assumption that silence indicated acceptance of the mandatory arbitration.
Several district court decisions reached similar results different bases. A California federal court compelled arbitration where the employee was required to acknowledge receipt and acceptance of an arbitration policy in the employer’s online portal. Even though there was no proof the employee had actually read the terms of the arbitration agreement, the Court focused on the fact that (1) the employee was required to visit a page with hyperlinks to the agreement and the opt out form, and (2) the arbitration agreement was a standalone document which notified the employee that opting out would not result in any adverse employment action.
In another case the employee signed an acknowledgment form saying he had received the company’s handbook, that the provisions of the handbook were subject to change at any time, and that continued employment was agreement that any changes applied to the employee. The employer later incorporated an arbitration program into the handbook and notified all employees by email of the new program. Employees were required to acknowledge review of the revised handbook and were told to pay special attention to the updated sections on arbitration. The company provided evidence that the employee had logged onto the portal and electronically acknowledged that he had reviewed the revised handbook. The court granted the company’s motion to compel arbitration.
A federal court in Wisconsin granted a motion to compel arbitration where the employee was required to log in to review and accept equity awards and the computer required the employee to actually open the plan and individual award agreements containing arbitration provisions and confirm he had read the documents before accepting the award.
These employers used a variety of ways to notify employees of arbitration policies and confirming receipt, review or acceptance. These can also be applied to other agreements and policies maintained solely through intranets or web portals.
For instance, an employer sought a preliminary injunction against a former employee alleged breach of non-solicitation and confidentiality obligations contained in an offer letter the employee received as part of a lateral, internal transfer. The employee denied she was ever presented with the offer letter. The employer showed (1) the employer had twice emailed the offer letter to the employee, (2) the employee had to go through an online offer and acceptance process as part of the transfer process, and (3) the employee had clicked an option accepting the transfer offer, which option also included a statement that the employee had read and accepted the offer letter. The court granted the preliminary injunction in large part because the employer had been able to provide evidence of affirmative acceptance of the agreement by the employee.
The cases teach several lessons:
It is convenient to put all company policies and agreements in one document. Companies should be cautious about putting arbitration clauses, restrictive covenants and confidentiality provisions into employee handbooks. Employee handbooks are generally long and viewed by many employees as a reference to answer questions; not a contract to be carefully reviewed. Important agreements run the risk of not being read in any detail, if at all. Besides, most handbooks specifically say (1) they do not create a contract of employment, and (2) they can be altered at any time by the employer. Some courts find these deny an offer under contract principles. Important agreements should be outside employee handbooks.
If you feel you really need integration, consider putting the arbitration and restrictive covenant language in separate sections or appendices or addendums, making them bold or all-caps and calling them out as being particularly important in the introduction or cover notes to employees. Separately, send email communications to employees drawing their attention to these important agreements. Remember, however, that even these steps may not overcome handbook language which says that the handbook is not a contract or that the handbook can be changed at any time. Language like that undercuts the ability to bind the employee to the handbook while the employer itself is not bound.
For important agreements, consider whether it makes sense to include hyperlinks to the full text in emails or other communications. Employees are not guaranteed to click through to the policies even if encouraged to do so. Minimize the steps between an employee receiving notice of a policy and the employee’s ability to review the full text. If possible, include the full text of policies in communications or on the applicable intranet or portal page.
If you want to offer employees the opportunity to opt out of arbitration (or are required to do so), it may make sense to create a hyperlink to the opt-out form. Do not hide that option or make it tough to access. Remember, the same tendencies that lessen the likelihood of an employee clicking through to the full text of an agreement apply to an employee’s potential inclination to affirmatively opt out.
Do not do employees favors by providing summaries of agreements or policies to make things easier to understand. This often results in misleading, inaccurate or incomplete summaries. There is a reason that agreements and full policies include all the language they do. A summary that leaves out important information can be worse than no summary at all. Rather than try shortcut information, focus on making the policies and agreements more understandable.
Consult internal or external IT resources to assess the practicality of implementing a forced review and acknowledgement process . Employers that require employees to click through and actually open relevant policies and agreements (and perhaps even scroll through the entire document and click an acknowledgement) will be in a stronger position to argue the existence of an offer and affirmative, unequivocal acceptance by their employees.
The most up-to-date and advanced portal procedures won’t matter if the agreements themselves lack key terms and concepts. Make sure agreements are clear that, law permitting, individuals’ continued employment is conditioned on acceptance of the applicable agreement. Agreements should confirm that if an individual continues their employment after the policy becomes effective and does not affirmatively object or opt-out of the policy they will be deemed to have accepted the terms. In online interfaces, make sure that the box the employee is supposed to check says the employee accepts and agrees to the policy, in addition to acknowledging receipt and review.