Texas Employment Law Update : Texas Employment Lawyer & Attorney : Russell D. Cawyer : Kelly Hart & Hallman Law Firm : Dallas TX Labor Updates

I have written some of the disadvantages of arbitration over other procedural methods of resolving cases such as waivers of jury trial.  (See post and post).  However, in an opinion from the Supreme Court of Texas, one disadvantage of arbitration (i.e., the limited appellate review of arbitration awards that is available) can be minimized where the parties draft their agreement to apply the Texas General Arbitration Act (TAA) rather than the Federal Arbitration Act (FAA).

In Nafta Traders, Inc. v. Quinn, an arbitrator found for the plaintiff in a sex discrimination case.  The arbitration agreement contained a provision limiting the arbitrator's authority such that he lacked "authority (i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law."

The employer sought to vacate the arbitration award claiming that the arbitrator exceeded his authority by rendering a decision containing reversible error.  The issue tackled by the Supreme Court of Texas was whether the TAA precludes an agreement for judicial review of an arbitration award for reversible error, and if not, whether the FAA preempts enforcement of such an agreement.  The Court held that parties may, pursuant to the TAA agree (subject to limits) to expanded judicial review of arbitration awards and that the FAA did not preempt such a conclusion.

Consequently, parties in Texas are free to agree that arbitration awards made subject to state law may be reviewed on a more expanded basis than awards rendered under the FAA.  However, the scope of that expanded judicial review is not without limits.  As the Court stated:

arbitration parties cannot agree to a different standard of judicial review than the court would employ in a judicial proceeding involving the same subject matter.  '[A]n arbitration agreement providing that a 'judge would the award by flipping a coin or studying the entrails of a deal fowl' would be enforceable.'

Moreover, to have a meaning judicial review the Court cautioned parties that they will need to be able to submit "a sufficient record of the arbitral proceedings, and complaints must have been preserved, all as if the award were a court judgment on appeal."  Consequently, some of the perceived advantages of arbitration (i.e., reduced cost, less formal etc.) will have to give way to parties that want to preserve a right to expanded judicial review because proper objections will have to be preserved and a transcript of the proceeding made.  In any event, employers who use arbitration as a form of alternative dispute resolution made consider making those agreements subject to state law so that they can take advantage of opportunities for judicial review.  Employers should keep in mind that, unlike the FAA, the TGAA requires that agreements to arbitrate personal injury (and like tort claims) be made only after the cause of action has accrued thereby excluding some claims from arbitration that would be covered by the FAA. 

You can access a copy of the concurring opinion here.

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Don Cruse at The Supreme Court of Texas Blog reports that the Court has agreed to determine whether a plaintiff making a Sabine Pilot claim (i.e., alleging that he or she was terminated solely for refusing to perform an illegal act) can recover exemplary damages.

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The Texas Supreme Court held that unilateral contracts can be formed with at-will employees when employers make promises to employees and those employees perform based on that promise.  In Vanegas v. American Energy Services, Inc. the Supreme Court was asked to decide the enforceability of an employer's alleged promise to pay five percent of the proceeds of a sale or merger of the company to employees who were still employed at the time of the merger.  The alleged promise arose in the context of a period when the company was performing poorly and the employees were complaining about working long hours with antiquated equipment. 

According to the Court's opinion, a vice-president of the company, in an effort to encourage employees to stay with the company, promised those original employees (of whom there were eight) that if they stayed with the company, they would be paid five percent of the value of any sale or merger.  When the company was sold, the seven remaining employees demanded their share of the proceeds.  The company refused and the employees sued.

The company argued that because the employees were at-will, any promise to pay those proceeds to the employees was illusory and unenforceable because the employer could have avoided the promise by firing the employees at any time.  The employees argued that the promise represented a unilateral contract that, once performed, became a binding enforceable obligation on the part of the employer.

The Court agreed with the employees and held that where an employer makes a unilateral promise to an at-will employee and the employee performs, a binding contract is formed upon that performance.  

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Texas courts strongly favor the resolution of disputes through arbitration. When parties to a dispute have signed an agreement to arbitrate covered disputes, Texas courts will rarely disregard that agreement.   A recent per curiam opinion of the Supreme Court of Texas continues that trend by conditionally granting mandamus relief in a case alleging national origin discrimination and retaliation for reporting alleged sexual harassment. (Opinion available here).

In In re Polymerica, LLC, a plastics manufacturer hired Angelica Soltero in 1998. In 2002, Polymerica retained Dickason Staff Leasing Company to manage its human resources operations. Soltero signed a Dispute Resolution Plan with Dickason that required all disputes (including disputes over discrimination, wrongful termination and harassment) between Polymerica, Dickason and/or Soltero be submitted to a four-step dispute resolution process. The final stage in that process included mandatory, binding arbitration under the Federal Arbitration Act.

Thereafter, Polymerica distributed an employee handbook that purported to take “precedence over, supersede[], and revoke[] any previous memo, bulletin, policy or procedure issued prior to [the handbook effective date], by [the employer] on any subject discussed in the Handbook.” The handbook included a section on arbitration that discussed the existence of the Dickason Dispute Resolution Plan. At the end of 2005, Polymerica and Dickason terminated their relationship and Polymerica took the human resources functions in-house. Five days later Soltero’s employment was terminated.

Soltero challenged the arbitration agreement first by claiming that the 2003 handbook provisions nullified the Dispute Resolution Plan she signed with Dickason. The court rejected that argument stating that “the Handbook provision, however, does not cover contracts like the Plan’s arbitration agreement” and observing that if the handbook nullified the Plan, the Handbook’s discussion of the Plan’s arbitration procedures and other multiple references to the Plan would be rendered meaningless. The court also made quick work of Soltero’s second claim that the Plan was illusory because the Handbook reserved the right to be modified at any time. Because the Plan, according to its own termination procedures, could only be modified with notice to the employees, and even then, only modified prospectively, the Plan was not illusory.

And finally, the Court rejected Soltero’s argument that Polymerica could not avail itself of the arbitration procedures of the Plan because it was a nonsignatory to the Plan. The Court noted that it has never required that an employer be a signatory to an arbitration agreement before it may insist on arbitrating a dispute with its employee. Because the arbitration agreement was enforceable and the scope of Soltero’s claims fell within its scope, the Supreme Court conditionally granted the writ of mandamus and directed the trial court to stay the proceedings and compel arbitration of all of Soltero’s claims.

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