Massachusetts Employment Law Letter

The good news and the bad news about employee handbooks

The determination of whether an employee handbook can be considered a contract is frequently a subject of debate.  Employees sometimes try to argue that their handbook is a contract that binds the employer to progressive discipline or other benefits of employment.  For their part, employers generally take steps to avoid having their handbooks be considered contracts, usually by means of an at will disclaimer that includes a provision allowing the employer to change the language of the handbook whenever it wants.  Two recent Massachusetts cases illustrate the plusses and minuses of handbook disclaimers.

Is a handbook’s arbitration clause an enforceable contract?

In the first case, Victoria Domenichetti was working as an externship coordinator at the Salter School which is owned and operated by Premier Education Group.  Domenichetti trained five other externship coordinators during the first few months of her tenure and received glowing performance reviews.  In May 2012, Domenichetti informed Premier’s HR department that she was pregnant and she then submitted Family and Medical Leave Act (“FMLA”) paperwork to request leave.  That same day, the school promoted a less experienced externship coordinator to director of career services, and less than a week later, the school demoted Domenichetti.  Domenichetti then sued Premier, Salter, and the president of the school for FMLA interference and retaliation.

Premier wanted to avoid defending a case in court, and so it tried to invoke a provision in its Employee Handbook that required employees to take any legal disputes to arbitration instead of filing a lawsuit.  The Handbook contained a “Dispute Resolution Policy” that required employees to arbitrate any employment disputes.  Domenichetti had signed an acknowledgment form at the time of her hire, and the school argued that the arbitration provision in the Handbook bound Domenichetti to arbitrating her claims.

The Premier Handbook was a 55 page document outlining the various company policies and had not been updated since 2004.  The Handbook contained two clauses that were problematic for Premier:  the “Receipt and Acknowledgement” section stated “the contents of this Handbook may be changed at any time at the discretion of Premier Education Group,” and the “Dispute Resolution Policy” section stated that both Domenichetti and Premier promised to be bound by a grievance and arbitration procedure, but that arbitration provision did not require a separate signature by Domenichetti.

Premier argued that Domenichetti was obligated to arbitrate her claims because she had signed the Handbook and that even if the Handbook itself was not an enforceable contract, the Dispute Resolution Policy should be considered a separate, binding agreement because of the “promise” language.  In response, Domenichetti argued that even if she had promised to arbitrate under the Dispute Resolution Policy, that clause was not enforceable because Premier could alter the terms of the Handbook at any time.

Arbitration clause unenforceable without separate agreement

The United States District Court for the District of Massachusetts agreed with Domenichetti and ruled that the Dispute Resolution Policy was unenforceable, meaning that Domenichetti’s lawsuit could proceed in court.  Normally, mutual promises make enforceable contracts, but in this case, the court focused on the fact that, even though the Handbook said that each side promised to arbitrate grievances, Premier’s promise was actually “illusory,” i.e., fake, and, therefore, unenforceable.  The promise to arbitrate was considered illusory because the Handbook stated that Premier could unilaterally change the contents of the Handbook, meaning that it could alter the arbitration language without needing Domenichetti to agree.  Also, because the Dispute Resolution Policy was just one of many policies contained in the Handbook and was not distinguished from the other policies by a separate signature requirement, special heading, etc., Premier’s argument that it was a distinct agreement from the rest of the Handbook was unsuccessful.  The case is Domenichetti v. Premier Education Group (D. Mass. 2013).

What about other handbook provisions? 

Although the arbitration clause in the Premier case was not found to be enforceable, generally it is a good thing for employers when a court declines to consider provisions of an employee handbook to be enforceable contracts.  In another recent District Court decision, the court denied a breach of contract claim by a former employee of Legal Sea Foods.  The employee argued that, in addition to violations of Massachusetts discrimination laws, Legal Sea Foods had violated its own anti-discrimination policy, which was contained in the employee Handbook.  The employee claimed that the Handbook was an enforceable contract and that Legal Sea Foods could be found liable for breach of contract because it had allegedly discriminated against him.  The court in this case ruled that written anti-discrimination policies contained in Massachusetts employee handbooks do not form a basis for a lawsuit because the Massachusetts discrimination laws provide the only process for claims of discrimination.  The case is Laureano v. Legal Sea Foods (D. Mass. 2013).

Bottom line

These cases serve as a reminder to employers that that just because a policy is written in an employee handbook does not mean that the policy is enforceable.  If you are trying to force employees to take their claims to arbitration instead of filing in court, you will need a separate and distinct agreement to that effect, signed by both parties.  And if you are trying to avoid having your handbook be considered a contract for other purposes, be sure to include appropriate disclaimer language.  If it’s been some time since you had your employee handbook reviewed, contact your labor and employment counsel for an update.

Article By: David W. McBride
Reprinted from the January 2014 issue of the  Massachusetts Employment Law Letter.