HR Management & Compliance

Texas Supreme Court to Nail Down Arbitration Issue

The Texas Supreme Court will hear arguments in mid-January about a Whataburger Restaurants case that has been bouncing around the state legal system for several years. As you will soon discern, I believe the court’s decision will be good news for employers with alternate dispute resolution procedures in their workplaces. It also will deliver yet another message to lower courts that continue to resist sending claims to arbitration. For more about Whataburger’s travails, read on.

arbitration

‘The Long and Winding Road’

Recall that Lennon/McCartney hit from 1970? It surely wasn’t what Whataburger was contemplating when employee Yvonne Cardwell injured herself at an El Paso outlet on December 23, 2012 (no, that’s not a typo). The restaurant was a nonsubscriber to the workers’ compensation system but had a plan to pay employees injured on the job coupled with an arbitration agreement requiring them and the company to arbitrate any disputes under the setup. Easy peasy.

Cardwell filed a lawsuit, and Whataburger asked the trial court to send the matter to binding arbitration. The suit found its way to the Texas Supreme Court, which in 2016 told the lower courts to consider whether the arbitration agreement was illusory (that is, not binding).

The trial court determined Whataburger’s arbitration agreement was illusory and refused to enforce it (more on what “illusory” means in a minute). When did the ruling happen? August 23, 2018.

Whataburger appealed to the El Paso appeals court, which declined to rule. For a variety of obtuse procedural issues, it concluded the company had waived its right to appeal. A very likely exasperated Whataburger (not to mention Cardwell, who was the one allegedly injured way back in 2012) decided to ask the state supreme court to intervene once again.

That Will Be One Deep-Fried Appeals Court Opinion

Let me be direct: The supreme court will see the delay as the lower courts slow-walking the arbitration request and will use its next opinion to tell them to stop it. Also, the court will likely address the issue of illusion.

I know “illusion” sounds like magic, and, in fact, an illusory contract is indeed a sleight of hand. Here, we’re talking about when one party isn’t committed to an agreement although on the surface it may appear to be. A binding arbitration contract requires mutual commitment, not just one-way. Just like, I imagine, a successful marriage.

In short, the keys to a binding arbitration agreement are:

  • Both the company and the employees are committed to mutually arbitrate disputes;
  • If the company changes the policy, it will give advance notice to the employees; and
  • Claims already in the arbitration system won’t be affected by the change.

If the three elements are present, the agreement is binding. If not, it isn’t binding and is illusory. So, let’s look at Whataburger’s policy and decide whether it satisfies the standard.

Whataburger has an employee handbook containing its arbitration policy. But the company inserted the following text at the start of it:

This handbook, with the exception of the mutually binding obligations of Company and Employee in the mandatory Arbitration Policy herein, is not a contract, expressed or implied, and does not guarantee employment for any specific duration.

But there’s more:

Without advance notice, the Company reserves the right to change or modify its policies from time to time, unless expressly stated otherwise herein. [Note this wording foreshadows some important language.] While every effort will be made to inform you of such changes, the Company may institute changes with or without notice. However, the mandatory Arbitration Policy herein will not be changed except in accordance [with the arbitration agreement].

And what does the agreement say? Here is the key language that saves it from being illusory:

The Company shall have no right, once the facts giving rise to the legally recognized claim or dispute have occurred, to unilaterally amend or modify this [arbitration] policy or otherwise avoid its obligation to proceed to arbitration. . . . [The Company] will not alter, modify, or amend this [arbitration] policy without first providing all employees with at least thirty days’ advanced written notice.

Caldwell’s argument? Well, the handbook’s acknowledgment portion says:

I understand that the information provided in the employee handbook is intended to be used as a guide only. Its provisions are not conditions of employment and may be modified, revoked, changed, or deleted by [the Company] at any time with or without notice. Nothing in this manual is intended to create, nor is it to be considered to constitute, a contract between [the Company] and any of its employees.

So, Caldwell wins, right?

Order Up!

No, Caldwell likely won’t win. In analyzing whether a contract exists, courts look at the entire document and all of its provisions. They won’t let the tail of a poorly worded acknowledgment wag the rest of the agreement and its clear intent to create a binding arbitration arrangement. Couple this with the presumption in favor of finding an arbitration agreement exists. Thus, the result the supreme court will reach is a foregone conclusion. In re Whataburger (Tex. Case No. 21-0165).

Bottom Line

A few final points: One way to avoid Whataburger’s scenario is to have the arbitration agreement as a standalone policy contained in a separate booklet or document. Or use the Internet to promulgate the policy, but be sure to (1) state in the transmittal e-mail that the link is to a binding arbitration agreement and (2) explain briefly but fully what that means. Finally, get an e-mail return receipt. Good luck.

Michael P. Maslanka is a professor at the UNT-Dallas College of Law. You can reach him at michael.maslanka@untdallas.edu.