By: James Kachmar

As you know, documentation is essential to performing even routine HR functions. You have potential employees fill out numerous pre-hire documents. You have employees sign employment agreements and other documents when hired. During the course of employment, you have employees sign additional documents, such as acknowledgments regarding your employee handbook, change in employment status documents, etc. But have you sat down recently to review whether all of the documents you are having employees sign are consistent? The recent case of Grey v. American Management Services demonstrates why you should.

In the Grey case, the employer, AMS, had Grey complete a pre-hire application packet that included an Issue Resolution Agreement (“IRA”). The IRA provided that all disputes related to Grey’s future employment with AMS would be subject to arbitration. However, when Grey was actually hired by AMS, he was asked to sign an employment contract that stated that only disputes arising out of a breach of the employment contract would be subject to arbitration. That employment contract also contained what’s called an “integration” clause that provided: “This agreement is the entire agreement between the parties in connection with employee’s employment with [AMS] and supersedes all prior and contemporaneous discussions and understandings.”

Grey later sued AMS for a variety of claims and claimed that he was subject to harassment based on his sexual orientation. AMS moved the Court to compel arbitration pursuant to the IRA he signed. The Court ordered the case to arbitration. At arbitration, AMS successfully defended against Grey’s claims and not only had the trial court confirm the arbitration award, but also award costs to AMS for having to defend against Grey’s claims.

Grey appealed the decision and argued that the trial court erred in ordering the case to arbitration. The appellate court agreed. Why? Because of the inconsistency in the arbitration provisions in the employment contract that Grey signed at the time of hire and the IRA he signed during the pre-hire application process.

The Court ruled that, under California law, “the terms of a final integrated contract `may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement’.” The Court found that the employment agreement that Grey signed at the time of hire contained an “integration” clause that meant it was intended to be the “final” contract regarding Grey’s employment and superseded all prior agreements, including the IRA. While the IRA contained an arbitration provision that was broader (requiring the arbitration of any dispute relating to Grey’s employment); the employment contract was much narrower requiring arbitration only of breach of the agreement itself (and not statutory claims such as unlawful harassment). Because the employment agreement superseded the IRA, the Court held that it was improper to rule to order Grey to arbitrate his harassment claims. Therefore, the appellate court vacated the arbitration award and ordered that Grey be allowed to present his claims in state court.

Had the employer in the Grey case simply reviewed the various employment documents it had employees sign to ensure consistency, it may well have avoided the outcome of having won at arbitration but later losing on appeal.

To avoid this potential outcome, all employers should periodically review any documents they have employees sign, such as employment agreements, employee handbook acknowledgments, dispute resolution agreements and other policies. Not only should they ensure that these documents are updated to address any new laws, they should also be reviewed to ensure that they remain consistent with one another over time.