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Arbitration agreements are contracts! Keep them out of employee handbooks

by on
in Employment Law,Human Resources

The Supreme Court of Texas has just ruled that arbitration agreements are legally valid and enforceable as long as they are stand-alone contracts—and not part of an overall employment manual.

Recent case: Frances Cabrera was an at-will employee of The Boot Jack, a McAllen Western-wear retailer. The company told Cabrera it required all employees to sign an arbitration agreement as a condition of continued employment. The agreement said all employment disputes would be settled by binding arbitration.

The arbitration agreement was separate from the company’s employee handbook. The Boot Jack’s handbook specified that nothing in it was a contract and that the company could change any of its policies at any time, with no notice and for any reason.

Cabrera developed a medical condition that required her to eat all meals for the day before 6 p.m. She asked for an accommodation so she could eat according to her doctor’s orders. But instead of accommodating Cabrera, The Boot Jack fired her.

That’s when Cabrera sued.

The store asked the court to order arbitration, according to the terms of the arbitration agreement she had signed. Cabrera argued that the agreement wasn’t valid because the handbook said the company could change the rules anytime it wanted. Since it could, there was no actual contract, she argued.

The case worked its way up to the Texas Supreme Court.

In a sharply worded opinion, the court sent the case to arbitration. It said the employer had done everything right. The handbook was separate from the arbitration agreement, and the handbook clearly stated that it was not a contract. The separate arbitration agreement, on the other hand, clearly stated it was a binding contract. (In Re 24R, No. 09-1025, Supreme Court of Texas, 2010)

Final note: By separating the arbitration agreement and the employee handbook, The Boot Jack accomplished two worthy goals. It retained the flexibility to change employment policies anytime it saw fit by making sure the handbook did not become a contractual rope around its neck. At the same time, it made sure the arbitration agreement did stick as a separate contract.

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