California Court Refuses to Enforce Arbitration Agreement Where Employees Lacked Notice of Revised Agreement

A California Court of Appeal struck down yet another employment arbitration provision, based on lack of notice to the employees, and an attempted modification to the agreement after the plaintiffs’ claims accrued and the plaintiffs’ complaint was filed.

In Avery v. Integrated Healthcare Holdings, Inc., six employees sued Integrated Healthcare Holdings, Inc., an operator of four hospitals in Southern California, for overtime violations in two separate actions. Integrated sought to compel arbitration of the claims pursuant to various documents the employees had signed over the course of their employment.

Integrated acquired four hospitals in 2005 from Tenet Healthcare Corporation. Alexandra Avery filed her claim in 2009, and four months later, Integrated issued all of its employees, including Avery, a new version of its employee handbook, but without notifying the employees. In January 2010, the second set of employees filed suit against Integrated.

The court concluded that Integrated was limited to the Tenet arbitration policy because it issued the Integrated employee handbook after plaintiffs’ claims had accrued, and Integrated failed to notify its employees about the handbook. The court held that the covenant of good faith and fair dealing prohibited Integrated from applying its arbitration agreement to claims that accrued before it issued its new employee handbook.

As to one employee, Gwendolyn Cade, no evidence was presented that she ever received a copy of the Tenet arbitration policy referenced in its employee handbook. Accordingly, an implied agreement to arbitrate could not be established based on Cade’s continued employment with Integrated.

As to the other employees, they all signed various forms—an Employee Acknowledgement, an Application for Employment, and a Transition Letter—that incorporated Tenet’s Fair Treatment Process set forth in the Tenet Employee Handbook. However, Integrated did not produce the applicable employee handbooks containing the arbitration provisions, except for one of the four hospitals, Western Med Santa Ana, at which only one of the plaintiffs worked. None of the documents signed by the plaintiffs specifically referenced the Western Med Santa Ana employee handbook. Accordingly, the court concluded the integration of the Fair Treatment Process arbitration procedure through the documents the employees signed was ineffective.

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