Employment Arbitration austin

Employment: Arbitration and ”At Will” Employment in Texas

Texas is an “at will” employment state.  This means that  absent a specific agreement to the contrary, “employment may be terminated by the employer or the employee at will, for good cause, bad cause, or no cause at all.” Federal Express Corp. v. Dutschmann, 846 S.W.2d 282, 283 (Tex. 1993).  Some employers may want to change this default rule for certain employees but most do not. For these employers, the most important thing to avoid is to accidently or unintentionally change an employee from  “at will” status.  This is why carefully drafted employee handbooks make it clear that the employer’s policies are just that—policies and not contractual representations.

The desire not to upset the “at will” apple cart leads to the question: Is it possible to bind an employee to an enforceable arbitration agreement and still maintain “at will” status?  The answer is yes.  In  In re Halliburton Co., 80 S.W.3d 566, 573 (Tex. 2002), the Texas Supreme Court held that arbitration agreements between an employer and an at-will employee are enforceable when there is an agreement that is valid under traditional contract principles.   One of the keys to making such an arbitration agreement valid and enforceable is that it be mutually binding on the parties.   If the employer retains the ability to unilaterally avoid arbitration, the agreement will be found to be unenforceable. See, J.M. Davidson, Inc. v. Webster, 128 S.W.2d 223 (Tex. 2003).  Therefore, in this context, applying the general rule in favor of employer “policies” rather than contract provisions can get an employer into difficulty:  a contract to arbitrate disputes may be found to be enforceable but a mere policy to arbitrate will not.

At first (and maybe even second) blush, the foregoing principle seems counterintuitive. If you have a mutually binding agreement to arbitrate, isn’t that a contract that alters the employee’s “at will” status? Not if its done right.  According to the Supreme Court in Haliburton,  if the employer agrees to be bound by the arbitration agreement, instead of merely agreeing to extend employment in exchange for the employee’s agreement to arbitrate, this is sufficient and the employee is still considered to be an “at will” employee.  But this must mean that you cannot require the employee to sign the arbitration agreement as a condition of employment, right?   Common sense may seem to dictate as much, but such is not the case. According to the Supreme Court in Haliburton an employer can always premise continued employment on acceptance of new or additional employment terms because the “at will” doctrine gives the employer the right to discharge the employee for any or even no reason.  Thus, an employee’s refusal to sign an arbitration agreement is a sufficient basis for termination because no basis at all is required.

In order for an arbitration agreement to be enforceable, the employer also must establish that the employee had notice of the agreement and accepted it.  This does not require that the employee receive a complete copy of the agreement and sign it, although this would usually be considered to be a good practice.

Another important consideration with regard to the enforcement of employee arbitration agreements is that the employee cannot be required to give up any substantive statutory rights under the labor code.  For example, an agreement that required the employee of a non-subscriber waive his rights to make a claim for personal injuries would not be enforceable.