Takeaway: Courts often take a dim view of employee arbitration clauses and may invalidate one if it is included as part of an employee handbook or other document that undermines its status as a separate contract.

An arbitration agreement contained in the employee handbook of Nationwide Motor Sales Corp. failed because the signature page indicated that Nationwide could unilaterally change its terms, the 4th U.S. Circuit Court of Appeals ruled.

Five former employees of Nationwide sued the company and its owners in federal district court, alleging fraudulent payment practices that reduced employees' sales commissions and final paychecks. Nationwide moved to compel arbitration and to dismiss or stay the proceedings.

The Nationwide employee handbook contained a section titled "Agreement to Submit All Employment Disputes to Arbitration." The first four paragraphs of the arbitration agreement stated an intent to arbitrate employment-related claims and specified the rules and procedures that would apply.

The fifth and final paragraph of the arbitration agreement provided an acknowledgement receipt that confirmed that the employee has read and understood each of the four sections of the agreement. It also contained a modification clause that stated that the employee understands that the employer has the right, from time to time, to make and enforce new policies or procedures and to change, abolish or modify existing policies, procedures or benefits, with or without notice.

The...

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