Make sure your arbitration agreement is valid in Texas

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in Employment Law,Human Resources

Arbitration agreements, in which employees give up their rights to go to court and instead submit their cases to arbitration, can be a great way to avoid unpredictable juries, negative publicity and the expense of a full-blown lawsuit.

But if the agreement isn’t worded just right, you may end up with more expense and lost time rather than less. The agreement must meet all Texas contract-law requirements to be enforceable. One essential element of all contracts: They must not be “illusory.” An illusory contract term appears to bind both parties, but in reality it binds only one.

Because most employee handbooks contain arbitration agreements and include a clause stating the employer can change the handbook at any time (as well as a statement that the handbook is not a contract), some courts will conclude an arbitration agreement in a company handbook is illusory and, therefore, not valid.

You can avoid this problem by making sure the arbitration agreement itself includes clear language stating that it's a contract and that neither party can change it without the other’s agreement.

Recent case: Aurora Brooks signed an acknowledgment that she’d read her employer’s company handbook, which contained an arbitration agreement. After the company terminated her, she filed a discrimination complaint with the Texas Commission on Human Rights. Her employer demanded the case go to arbitration instead. Brooks argued the agreement, which was part of an employee handbook the employer said it had the right to change at any time, was illusory and therefore invalid under Texas contract law.

Not so, said the Texas Court of Appeals. It noted that the agreement itself clearly stated it was a separate and binding contract. (D.R. Horton v. Brooks, No.14-06-00099, Court of Appeals of Texas, Fourteenth District, 2006)

Final tip: Ask an employment lawyer for help if you want to include an arbitration agreement in your employee handbook.

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