Saturday, August 03, 2013

Court of Appeal: No Post-Lawsuit Change to Arbitration Policy

The court of appeal's decision in  Avery v. Integrated Healthcare Holdings Inc. contains a number of lessons about administering policies and litigating.   So, yes, it's another arbitration decision, but more interesting.

First, Tenet owned some hospitals that it later sold to Integrated. Tenet had in place a “Fair Treatment Process,” which included arbitration.  Applicants and employees signed off on this process at a number of different points in their employment relationship. Integrated maintained the arbitration program after the purchase, but made some changes and called it the Alternative Dispute Resolution Process. 

Avery brought a class action for unfair competition, failure to pay appropriate overtime wages, failure to provide meal and rest periods, failure to pay wages when due, and failure to provide accurate wage statements. 

While the lawsuit was pending, Integrated unilaterally changed the arbitration clause by adding a class arbitration waiver.  Integrated posted the change on its intranet page.  But it did not provide employees with a copy of the new employee handbook containing the arbitration provision change, instruct employees to review the new handbook on the intranet, or even notify employees of the existence of the new handbook.

Integrated tried to compel arbitration of each individual plaintiff's claim. The trial court denied its motion to compel. The Court of Appeal affirmed.

The court made two important decisions.  First, the court held that Integrated's class action waiver was unenforceable, but not because of the ongoing war about class action waivers.  Rather, the court held that it was invalid because it was issued after the claims arose, and Integrated failed to notify employees about the new employee handbook. As a result, Integrated was required to rely on the arbitration clause in the Tenet Employee Handbook, the Fair Treatment Process.
an employer may not make unilateral changes to an arbitration agreement that apply retroactively to “accrued or known” claims because doing so would unreasonably interfere with the employee’s expectations regarding how the agreement applied to those claims.  (Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425, 1465 (Peleg).)  Similarly, the employer must give the employee reasonable notice regarding changes the employer makes so the employee is aware of his or her rights under the agreement.  (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 706-708 (Serpa).)  Both of these rules prevent Integrated from applying the Alternative Dispute Resolution Process to Plaintiffs’ claims.

Of note, although there are cases disfavoring "policy" based arbitration provisions, the court emphasized that it is ok to have an arbitration agreement in a policy, and even to make changes. But those changes have to be prospective in application only, and the employer must ensure the employees receive reasonable and actual notice of the changes.

Second, the court decided that the trial court correctly denied the motion to compel arbitration, even under the Tenet policy.  Why?  Because the Integrated could not prove that employees had agreed to the Fair Treatment Process that it attached to its motion.  So, the employees signed off on the application and other forms stating they had received the Fair Treatment Process, but there was evidence that there was more than one of those in existence.  The court had no way of knowing if the Fair Treatment Process that was attached to the motion was the one employees agreed to.

Integrated contends the trial court erred in denying its motions to compel arbitration because Plaintiffs each agreed to arbitrate their claims under the Fair Treatment Process set forth in the Tenet Employee Handbook. According to Integrated, the Employee Acknowledgment Form, Application for Employment, and Transition Letter Plaintiffs signed incorporated the Fair Treatment Process and established its binding arbitration provisions as the exclusive means for resolving all claims regarding Plaintiffs’ employment. Although we agree Plaintiffs (except Cade) generally agreed to a Fair Treatment Process by signing one or more of these documents, we nonetheless affirm the trial court’s order denying the motions to compel arbitration because Integrated failed to present sufficient evidence establishing the specific Fair Treatment Process it presented to the trial court was the Fair Treatment Process to which Plaintiffs agreed.

The lesson here?  Ensure that there is a way of identifying handbooks and other documents (such as a control number, version, etc.).  In this case, the application and other documents "incorporated by reference" the full text of the Fair Treatment Process, but there was no way of knowing which version the employee agreed to.  It is critical to have a way of matching the receipt to the policy document.

This case is Avery v. Integrated Healthcare Holdings, Inc. and the opinion is here.