Austin Magistrate Judge Recommends Arbitration in Employment Discrimination Lawsuit

An Austin Magistrate Judge has recommended that a race discrimination lawsuit brought by a former J.C. Penney employee be submitted to arbitration.  In Johnson v. J.C. Penney Corp., Inc., No. A13-CA-1079-LY (W.D. Texas, June 18, 2014), an African-American woman, Johnson, was fired from her position as a hairdresser at a J.C. Penney store located in Temple, Texas.  About three months after her termination, Johnson filed a lawsuit against her former employer alleging J.C. Penney discriminated against her in violation of Title VII of the Civil Rights Act of 1964 and the Texas Commission on Human Rights Act.  The company responded by filing a motion to compel arbitration pursuant to an employment agreement that was signed by Johnson.  According to Johnson, however, the parties’ agreement to arbitrate is illusory and unenforceable.

After stating Texas law requires that an agreement to arbitrate be supported by consideration, the magistrate judge examined the scope of the parties’ agreement.  The judge said,

As it relates specifically to arbitration agreements, the “[m]utual agreement to arbitrate claims provides sufficient consideration to support an arbitration agreement.” In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010). Where one party has the unrestrained unilateral authority to terminate its obligation to arbitrate, however, the agreement understandably is illusory. See id. at 567 (“An arbitration clause is not illusory unless one party can avoid its promise to arbitrate by amending the provision or terminating it altogether.”).

Although Johnson stated she voluntarily signed the arbitration agreement and her claims fall within its scope, she argued before the court that the agreement is illusory because it refers to an accompanying document that provides J.C. Penney with a unilateral and unfettered right to amend it.  After examining the language of the arbitral agreement in conjunction with Rule 21 of the J.C. Penney Rules of Employment Arbitration, the magistrate judge stated,

The plain language of the Agreement here does not grant JC Penney a unilateral right to amend the Agreement. Rather, it allows JC Penney to clarify or correct typographical errors in the rules, strike rules that are found to be unenforceable by a court or arbitrator, and apply any such modifications only to cases begun 90 days after such change is published. This is far from granting JC Penney an “unfettered unilateral right” to amend the Agreement, as Johnson argues, and the Agreement is therefore not an illusory promise to arbitrate. See In re 24R, Inc., 324 S.W.3d at 566.

The judge continued,

This is not the first time this very issue has been decided by a court. In Gonzales v. J.C. Penney Corp., Inc., 2013 WL1798684 (N.D. Okla. April 29, 2013), the plaintiff raised the exact same argument raised here, contending that JC Penney’s arbitration agreement was unenforceable because Rule 21 gave it an unfettered right to amend the agreement. The district court rejected the argument…

Because the magistrate judge determined the parties’ agreement to arbitrate was not illusory and Rule 21 of the J.C. Penney Rules of Employment Arbitration was “a reasonable modification provision,” he recommended that the Western District of Texas grant J.C. Penney’s motion to compel the employment discrimination dispute to arbitration.

Photo Credit:  By Bernd00 (Own work) [CC-BY-SA-3.0-2.5-2.0-1.0], via Wikimedia Commons