Dallas Bar Association

Get Used to It: Recent Rulings Cement Arbitration Acceptance

by Stephen E. Fox and Parker W. Howard

Arbitration has long been the business community’s favored dispute resolution process. As compared to the jury trial process, they see arbitration as a less expensive, quicker and more rational process to resolve disputes with customers and employees. Federal courts have long been enamored with arbitration, and Texas courts have followed the federal trend in blessing the enforcement of arbitration in a myriad of situations. This judicial trend has accelerated in the recent past in Texas courts and the U.S. Supreme Court.

TexasCourts. The willingness of Texas courts to countenance resolution of disputes outside the context of a courtroom began to accelerate in 2009 and in a fever pitch in 2012. In 2009, the Texas Supreme Court found that non-signatories to an arbitration agreement could be bound to address their grievances far from the courtroom. Specifically, in In re Labbatt Food Service, L.P), the Court held that an arbitration agreement between an employer and employee, signed before the employee’s death, was binding upon the employee’s wrongful death beneficiaries even though they never signed the agreement. In so holding, the Court discarded years of contrary law.

The Labbatt Court went on to say that though state law governs whether someone agreed to arbitrate and federal law governs the scope of the clause under the FAA, the issue is open as to whether state or federal law governs whether nonsignatories are bound by an arbitration agreement. The Court concluded that nonsignatory beneficiaries in states where wrongful death actions are derivative in nature (such as Texas) are usually bound by a decedent’s agreement.

Texascourts’ enthusiasm for non-jury-based dispute resolution methods can also be seen in the world of employment disputes. In an important case from 2012, the Texas Supreme Court found that an employer’s threat to exercise its legal right to terminate an at-will employee if he refused to sign a jury waiver does not amount to coercion invalidating a jury waiver agreement.

Additionally, a stand-alone arbitration agreement is still valid and not illusory even if an employer expressly retains the right to unilaterally revoke or change any employment policy (including an arbitration policy) in the company’s employment manual. This is true, the Court found, even when the arbitration agreement makes no mention of a right to change its terms or of incorporating the employment manual by reference.

Finally, mutual promises to submit all employment disputes to arbitration are sufficient consideration for arbitration agreements.

U.S.Supreme Court. The Texas courts’ favorable view of arbitration has followed the lead of the U.S. Supreme Court, which has continued to express a highly positive vision of arbitration. For example, in 2010, the Court held that arbitrators—not judges—have the authority to determine unconscionability when the agreement expressly reserves that power to an arbitrator. In response to an employee’s discrimination lawsuit, the employer in Rent-A-Center, Inc. v. Jackson filed a motion to compel arbitration based on an arbitration agreement signed by the plaintiff as a condition of his employment. The plaintiff argued that the court, not the arbitrator, should decide the issue of unconscionability. The employer countered that the agreement expressly provided that the arbitrator, and not a court, would have “exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.” The Supreme Court sided with the employer.

In November, continuing its arbitration-friendly trend, the Court reiterated the strong “national policy favoring arbitration;” that arbitrators, not federal or state courts, determine validity of an arbitration clause itself; and that the FAA will trump any state law that appears to prohibit arbitration of certain categories of claims. This decision came shortly after a February decision in which the Court rebuffed the West Virginia Supreme Court of Appeals with the supremacy of the FAA when it attempted to prohibit enforcement of pre-dispute arbitration agreements for personal injury and wrongful death cases.

These rulings demonstrate that Texas courts and the U.S. Supreme Court really mean it when they say there is a strong policy in favor of arbitration and we need to get used to it.

Stephen E. Fox is a principal and Parker W. Howard is an attorney at Fish & Richardson, PC in the Dallas office. They can be reached at sfox@fr.com and phoward@fr.com, respectively.

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