Supreme Court Rules Against Employee

Recently, the Texas Supreme Court ruled that a worker was required to arbitrate her employment discrimination claims against her employer even though she was an “at-will” employee. Normally, an employer cannot take away an employee’s rights to bring a claim in the Texas court system unless the agreement to arbitrate has “consideration.” That term means that the employer has given value in order to compel arbitration. Here, the employee was an “at-will” employee, and so the employer could fire her at any time for any cause (other than for an illegal reason, such as one based upon age, religion, or race). She therefore argued that the employer gave no consideration to remove her right to pursue a lawsuit. The Supreme Court disagreed.

The Supreme Court’s opinion was issued in the case of In re 24R, Inc., d/b/a The Boot Jack, ___ S.W.3d ___ (Tex. 2010)(10/22/10). “Because the arbitration agreement is not illusory,” the Supreme Court ordered the trial court to compel arbitration.

“A party seeking to compel arbitration must establish that a valid arbitration agreement exists between the parties. ‘The party seeking to avoid arbitration then bears the burden of proving its defenses against enforcing an otherwise valid arbitration provision.'”

Here, the Supreme Court ruled that the arbitration agreement did not lack consideration. “Mutual agreement to arbitrate claims provides sufficient consideration to support an arbitration agreement. At-will employment does not preclude employers and employees from forming subsequent contracts, ‘so long as neither party relies on continued employment as consideration for the contract.’ ‘In the context of stand-alone arbitration agreements, binding promises are required on both sides as they are the only consideration rendered to create a contract.’ A promise is illusory if it does not bind the promisor [here, the employer], such as when the promisor retains the option to discontinue performance. When illusory promises are all that support a purported bilateral contract, there is no mutuality of obligation, and therefore, no contract.”

“An arbitration clause is not illusory unless one party can avoid its promise to arbitrate by amending the provision or terminating it altogether.” Though the employer could change its policy manual, “the arbitration agreement makes no mention of the right to change its terms, nor does it mention or incorporate by reference the employee manual. Documents incorporated into a contract by reference become part of that contract. . . . Express disclaimers in employee handbooks ‘negate[] any . . . restriction on the employment at will relationship.'” “The Boot Jack does not retain any right within the arbitration agreement to modify or abolish its terms. . . .” “The arbitration agreement is a stand-alone contract that . . . does not incorporate the employee policy manual.”

The bottom line is that the employee cannot pursue her claims in the court system of the State of Texas, and she must instead pay for expensive arbitration.