Arbitration Mandated between Employer/Employee in Texas?

Suppose an employee and employer agree to arbitrate their disputes and the agreement is signed in Texas. Obviously, Texas law should apply.

A recent Court of Appeals in El Paso case involving arbitration agreement was decided on January 11, 2012. In Mendivil v. Zanios Foods, Inc, an employee signed  a BROAD  employment agreement that included an arbitration agreement for "any controversy, claim, or dispute against [Employer] arising out of or relating to my employment with [Employer]." The contract went on to say that arbitration was the sole and exclusive remedy for any such controversy and that the employee waived his right to pursue claims in court or administrative forums other than arbitration. The procedure for submitting such a claim was also outlined in the contract.

After the employee was injured in the course of his employment and terminated for an reason allegedly unrelated to the injury, he sued his employer. The employer filed a motion to compel arbitration, which the trial court granted without determining if the arbitration agreement was valid. On appeal, the court repealed and remanded based on the employer’s failure to prove a valid arbitration agreement.

This case is helpful as it lays out several rules of law on how to determine if a contract is a valid arbitration agreement.

The Federal Arbitration Act typically governs arbitration provisions in contracts involving interstate commerce. To compel arbitration under the FAA, a party must establish that there is a valid arbitration agreement and that the claims fall within the scope of that agreement. The party attempting to compel arbitration must show that the arbitration agreement meets all requisite contract requirements. If the trial court determines that a valid agreement exists, the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcement of the arbitration agreement.

The elements required for the formation of a valid and binding contract include:

(1) an offer;

(2) acceptance in strict compliance with the terms of the offer;

(3) a meeting of the minds;

(4) each party’s consent to the term; and

(5) execution and delivery of the contract with the intent that it be mutual and binding. An agreement to arbitrate must also be supported by consideration.

Mutual, reciprocal promises which bind both parties may constitute consideration for a contract. Arbitration clauses generally do not require mutuality of obligation so long as adequate consideration supports the underlying contract. Stand-alone arbitration agreements require binding promises from both sides as they are the only consideration rendered to create a contract. (Mutual promises to submit a dispute to arbitration are sufficient consideration to support an arbitration agreement.) When both the employee and the employer promise to submit all employment disputes to arbitration, there is sufficient consideration and the contract is not illusory. A promise which does not bind the promissor, as when the promissor retains the option to discontinue performance, is illusory.

In Mendivil, the employer never expressly agreed to arbitrate its disputes with Medivil nor to be bound by the result of such arbitration. As such, the court found that the promise did not bind the promissor and was, therefore, illusory and not a valid contract. Mendivil v. Zanios Foods, Inc.  08-10-00359, TX App. El Paso, 1/11/12. 357 S.W. 3d 827.

　

Be careful if the agreement is so broad to state only "any controversy between myself and [employer] arising out of or in any way connected with my employment...." The Mendivil agreement is far more specific and lays out the details of arbitration including a waiver of the employee’s right to pursue a claim in court against employer. The employer never agreed to arbitrate its disputes with the employee nor did the employer agree to waive its right to trial.

If an employee did not expressly waive her rights to jury trial, but agreed to arbitrate under the rules of the American Arbitration agreement, you may have a problem. Also if the employer did not have a representative sign the arbitration agreement , an argument can be made that the employer did not agree to arbitrate, however,

On the other hand, if the agreement says that "any controversy arising out of my employment" an interpretation can be made that if  the employee were to cause  some harm to the employer, the employer would have to arbitrate its dispute with the employee. Unfortunately, arguments can be made both ways. If the  agreement is not as constrictive in that it does not require the employee to perform numerous steps when they have a dispute within a certain time period like the Mendivil agreement did, we may be able to show that the agreement was not overly burdensome to the plaintiff and arbitration is required.

In other words, the application of an arbitration agreement will require a very careful maneuvering on a tight rope.