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Arbitration Clauses in Employment Contracts

Arbitration Clauses in Employment Contracts. 1. Arbitration clauses are legislatively and judicially favored to resolve employment disputes.

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Arbitration Clauses in Employment Contracts

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  1. Arbitration Clauses in Employment Contracts

  2. 1. Arbitration clauses are legislatively and judicially favored to resolve employment disputes. a. Texas Supreme Court historically favors arbitration – particularly in employment disputes. East Texas Salt Water DisposalCompany v. Werline, 307 S.W.3d 267, 271 (Tex. 2010).¹ b. The Texas legislature has codified the Texas Arbitration Act (TAA) under the Civil Practice and Remedies Code section 171.001 et. seq.

  3. 2. Arbitration is a matter of contract between the parties. • “Binding Arbitration. Any claim, dispute or controversy arising out of or in any way relating to this Agreement, including but not limited to the enforcement or alleged infringement, interference or breach of any related right or obligation of the parties, shall be submitted to binding arbitration by the American Arbitration Association in accordance with the employment rules then in effect for the Association.”

  4. 3. Why not just go to trial? Reasons to favor arbitration - cost - flexibility - privacy - expertise

  5. 4. What does your arbitration clause say? a. Does it mention the TAA vs. FAA? b. How initiated? c. Injunctive relief? (When? Where?) d. Who pays? e. Who is the arbitrator?

  6. 5. Nafta Traders, Inc. v. Margaret A. Quinn, 339 S.W.3d 84 (Tex. 2011).² a. Procedural History b. “The Arbitrator does not have the 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.” c. Parties agreed to expand the narrow scope of judicial review. d. An arbitrator derives his power from the parties’ agreement to submit to arbitration. City of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009) (citing Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (Tex. 1959)) (“the authority of arbitrators is derived from the arbitration agreement”).

  7. 6. The TAA’s limited scope of review CPRC 171.088 Vacating Award. (a) On application of a party, the court shall vacate an award if: (1) the award was obtained by corruption, fraud, or other undue means; (2) the rights of a party were prejudiced by: (A) evident partiality by an arbitrator appointed as a neutral arbitrator; (B) corruption in an arbitrator; or (C) misconduct or willful misbehavior of an arbitrator; (3) the arbitrators: (A) exceeded their powers; (B) refused to postpone the hearing after a showing of sufficient cause for the postponement; (C) refused to hear evidence material to the controversy; or (D) conducted the hearing, contrary to Section 171.043, 171.044, 171.045, 171.046, or 171.047, in a manner that substantially prejudiced the rights of a party; or

  8. (4) there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection. (b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy of the award to the applicant. A party must make an application under Subsection (a) (1) not later than the 90th day after the date the grounds for the application are known or should have been known. (c) If the application to vacate is denied and a motion to modify or correct the award is not pending, the court shall confirm the award.

  9. 7. The FAA’s limited scope of review 9 U.S.C. Sec. 10 (Award of Arbitrators); vacation; grounds; rehearing (a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration- (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

  10. (b) If an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators. (c) The United States district court for the district wherein an award was made that was issued pursuant to section 580 of title 5 may make an order vacating the award upon the application of a person, other than a party to the arbitration, who is adversely affected or aggrieved by the award, if the use of arbitration or the award is clearly inconsistent with the factors set forth in section 572 of title 5.

  11. 8. Nafta Opinion continued – An arbitrator derives his power from the parties’ agreement to submit to arbitration. City of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009) (citing Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (Tex. 1959)) (“the authority of arbitrators is derived from the arbitration agreement”) a. Distinguishes Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 578, 128 S.Ct. 1396, 170 L.Ed. 2d 254 (2008). i. Judicial review limited to grounds enumerated in the statute (cannot expand by agreement) ii. Ignores 9 U.S.C. § 10(a)(4) (United States Court may vacate arbitration award “(4) where the arbitrators exceeded their powers). iii. Circular textual/policy analysis. iv. Review reasons to favor arbitration (speed, but also cost, flexibility, privacy, and expertise) – questions speed.

  12. v. Parties have freedom to contract and nothing in TAA would prohibit expanded judicial review. vi. No federal preemption as there is no conflict between TAA and FAA. b. Must have sufficient record for appeal and preserve complaints/error. c. Cannot agree to different standard than judicial proceeding – “An arbitration agreement providing that a ‘judge would review the award by flipping a coin or studying the entrails of a dead fowl’ would be unenforceable.” d. Interesting concurring opinion by Justice Wallace, Wainwright and Lehrmann.

  13. ¹Cases citing East Texas Salt Water Disposal Company v. Werline, 307 S.W.3d 267 (arbitration historically favored) • Bison Bldg. Material, Ltd. v. Aldridge, 2012 Tex. LEXIS 642 (Tex. 2012) • Corr. Prods. Co. v. Gaiser Precast Constr., 2013 Tex. App. LEXIS 850 (Tex. App. El Paso Jan. 30, 2013) • Vorwerk v. Williamson County Grain, Inc., 2012 Tex. App. LEXIS 1481 (Tex. App. Austin Feb. 23, 2012) • Denver City Energy Assocs., L.P. v. Golden Spread Elec. Coop., Inc., 340 S.W.3d 538 (Tex.App.—Amarillo 2011) • Las Palmas Med. Ctr. v. Moore, 329 S.W.3d 57 (Tex. App.—El Paso 2010)

  14. In the Guardianship of Cantu de Villarreal, 330 S.W.3d 11 (Tex. App.—Corpus Christi 2010) • State Farm Mut. Auto. Ins. Co. v. Fred Loya Ins. Agency, Inc., 2010 Tex. App. LEXIS 6230 (Tex App. San Antonio Aug. 4, 2010) • GE Commer. Distrib. Fin. Corp. v. Momentum Transp. Servs., L.L.C., 2010 Tex. App. LEXIS 2486 (Tex. App. Beaumont Apr. 8, 2010)

  15. ² Cases citing Nafta Traders, Inc. v. Margaret A. Quinn, 339 S.W.3d 84 (Tex. 2011). • W. Dow Hamm III Corp. v. Millennium Income Fund, L.L.C., 2013 Tex. App. LEXIS 2417 (Tex. App. Houston 1st Dist. Mar. 12, 2013) • Corr. Prods. Co. v. Gaiser Precast Constr., 2013 Tex. App. LEXIS 850 (Tex. App. El Paso Jan. 30, 2013) • Tex. Std. Oil & Gas, L.P. v. Frankel Offshore Energy, Inc., 2012 Tex. App. LEXIS 10750 (Tex. App. Houston 14th Dist. Dec 28, 2012) • Preston v. Dyer, 2012 Tex. App. LEXIS 9753 (Tex. App. Beaumont Nov. 29, 2012) • In re Guggenheim Corporate Funding, LLC, 380 S.W.3d 879 (Tex.App.—Houston [14th] 2012) • White v. Siemens, 369 S.W.3d 911 (Tex.App.—Dallas 2012) • In re Key Equip. Fin. Inc., 371 S.W.3d 296 (Tex.App.—Houston [1st] 20120

  16. Vorwerk v. Williamson County Grain, Inc., 2012 Tex. App. LEXIS 1481 (Tex. App. Austin Feb. 23, 2012) • GM Oil Props., Inc. v. Wade, 2012 Tex. App. LEXIS 579 (Tex. App. Houston 1st Dist. Jan. 26, 2012) • Senter Invs., L.L.C. v. Amirali & Asmita Veerjee & Al-Waahid, Inc., 358 S.W.3d 841 (Tex.App.—Dallas 2012) • Aspri Invs., LLC v. Afeef, Tex. App. LEXIS 7082 (Tex. App. San Antonio Aug. 31, 2011) • Thomas v. Cook, 350 S.W.3d 382 (Tex.App—Houston [14th] 2011) • Rachal v. Reitz, 347 S.W.3d 305 (Tex.App.—Dallas 2011) • Skidmore Energy v. Maxus (U.S.) Exploration Co., 345 S.W.3d 672 (Tex.App.—Dallas 2011)

  17. Jury Waivers in Employment Contracts

  18. 1. Contractual jury waivers are enforceable. a. Parties to a contract may agree to waive a jury in the contract, in advance of litigation. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129-135 (Tex. 2004). b. The jury waiver must be voluntary, knowing, and intelligent, and made with full awareness of the relevant circumstances and legal consequences. Id., at 133-135. i. A conspicuous waiver provision is prima facie evidence of a knowing and voluntary waiver and shifts the burden of proof to the opposing party to rebut it. In re GE Capital Corp., 203 S.W.3d 314, 316 (Tex. 2006). 1. “Conspicuous” means “so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it.” Tex. Bus, & Com. Code § 1.201(b)(10).

  19. c. Burden of proving the jury waiver was not executed voluntarily, knowingly, and intelligently, and made with full awareness of the relevant circumstances and legal consequences lies upon the party seeking to avoid enforcement of the waiver. In re Bank of America, N.A., 278 S.W.3d 342, 344-346 (Tex. 2009) i. Exception: 1. The allegation of fraud connected to waiver provision itself could shift burden even though general allegation of fraud in inception of entire contract does not do so. Id. d. Coercion in the execution of the contractual jury waiver also invalidates the waiver. Prudential, 148 S.W.3d at 132. i. So what is coercion in the execution of a contractual jury waiver?

  20. 1. a threat of an act that the actor had no legal right to do; 2. a threat of such a nature it destroys the other party’s free agency; 3. a threat that overcomes the other party’s free will and causes it to do what it otherwise would not have done and that it was not legally bound to do; 4. imminent restraint; and 5. no means of protection. Flameout Design &Fabrication, Inc. v. Pennzoil Caspian, Corp., 994 S.W.2d 830, 837 (Tex. App.—Houston [1st Dist.] 1999, no pet.)

  21. ii. What is not coercion 1. Threatening to terminate an at-will employee who did not sign waiver, since employer’s threat to exercise its legal right to terminate at- will employee cannot amount to coercion. In re Frank Kent Motor Co., 361 S.W.3d 628, 631-632 (Tex. 2012). a. Same applies to not hiring an employee. Id., citing Carter v. Countrywide CreditIndus., Inc., 362 F.3d 294, 301 (5th Cir. 2004).

  22. 2. So why do you want a contractual jury waiver? a. Avoid runaway juries. i. Perception that the judge will give you a fairer trial. b. Less costly than jury trial.

  23. 3. Why not just go to arbitration? a. Contractual jury waiver will be less costly than arbitration. i. Costs to file with American Arbitration Association - $975-$18,800+ (capped at $71,000) plus arbitrator’sfees ii. Costs to file lawsuit - $242+ b. Discovery may be restricted in arbitration, but not in a bench trial.

  24. 4. Don’t sit on your right to a non-jury trial. a. Party must promptly urge existence of contractual waiver in response to jury demand or it may be ineffective. b. Contractual waiver was ineffective when party waited more than four months after jury demand before moving to quash that demand. Rivercenter Assocs. v. Rivera, 858 S.W.2d 366, 367- 368 (Tex. 1993).

  25. 5. So how do you go about obtaining a jury waiver from your employee? a. Employment contract. b. Employee handbook. i. Signed acknowledgment of receipt of employee handbook.

  26. c. Example of enforceable jury waiver as part of signed acknowledgment of an employee handbook (adopted from Frank Kent, 361 S.W.3d at 629) i. I agree that with respect to any dispute between Employer and me to resolve any disputes between us arising out of or in any way related to the employment relationship (including, but not limited to, employment and discontinuation of employment) before a judge without a jury. EMPLOYER AND EACH EMPLOYEE THAT SIGNS THISACKNOWLEDGMENT, RECEIVES A COPY OF THIS HANDBOOK, HAS KNOWLEDGE OF THIS POLICY, AND CONTINUES TO WORK FOR EMPLOYER THEREAFTER, HEREBY WAIVES THEIR RIGHT TO TRIAL BY JURY AND AGREE TO HAVE ANY DISPUTES ARISING BETWEEN THEM RESOLVED BY A JUDGE OF A COMPETENT COURT SITTING WITHOUT A JURY.

  27. 1. Caveat – make sure the handbook and acknowledgment contains language that the jury waiver can only be changed by the employer with the mutual agreement of the employee in writing. a. Otherwise, language in the handbook that the employer may revise or revoke anything contained in the handbook without any reason or without notice may be interpreted to void the jury waiver for lack of mutuality.

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