Arbitration clause in employment contract superseded that in earlier agreement and made wrongful termination claim not subject to arbitration

April 17, 2012
By Justice Steven Vartabedian (Ret.) on April 17, 2012 6:00 AM |

contract.jpgIn the morass of paperwork accompanying the start of employment, an employer may ask the employee to sign multiple documents discussing arbitration: an employee handbook, an employer alternative resolution policy statement, and/or the contract of employment may be among the many documents. Which executed document concerning arbitration controls if their content differs?

This question is presented in Grey v. American Management Services (filed March 28, 2012) 2012 DJDAR 4075. When plaintiff applied for employment, defendant provided him with an application packet that contained an Issue Resolution Agreement (IRA) which he signed. The IRA required arbitration of any claim "arising out of or [in] relation to [the] application or candidacy of employment." After he accepted employment, plaintiff signed an employment contract that required arbitration of "a dispute arising out of the alleged breach of any provision of this Agreement." Plaintiff was terminated from his employment and filed a lawsuit primarily alleging employment discrimination and wrongful termination (no claim of "breach of contract"). Defendant successfully moved to compel arbitration, and the arbitrator found in its favor.

On appeal, the Court of Appeal, Second Appellate District, Division Four, reversed, finding that Grey was not required to submit his claims to arbitration under the terms of the employment contract.

The appellate court delineated the critical issue as whether the parties intended their writing (the employment agreement) to serve as the exclusive embodiment of their agreement. The employment agreement included an integration clause providing it was "the entire agreement of the parties and supersedes all prior and contemporaneous discussions and understandings."

Defendant argued that the IRA was not an agreement but rather an employment procedure that supplemented the employment contract, thus it was not integrated into the contract and superseded. Also, claimed defendant, the language of the IRA shows the parties intended to apply it despite the integration clause in the later employment contract.

The appellate court disagreed finding the IRA to be evidence extrinsic evidence to the parties' integrated agreement, determining that the IRA contradicts the plain terms of the agreement. Because plaintiff's claims are for statutory violations, not arising from a breach of the employment contract, plaintiff was not required to arbitrate.

Lesson to employers: review for consistency the arbitration clauses used in documents given to potential and actual employees.