Houston COA Holds Subsequent Employment Contract Did Not Revoke Prior Arbitral Provision

Texas’ 14th District Court of Appeals in Houston has overturned a district court’s order denying arbitration in an employment dispute.  In The Subsea Co. v. Payan, et al., No. 14–13–00849–CV (Tex. App – Houston [14th Dist.], September 18, 2014), an oil and gas specialty component manufacturer, The Subsea Company, hired a woman to serve as an account manager.  As part of her employment, the woman signed a sales incentive plan for the period of May 24, 2010 through May 24, 2011.

According to the terms of the incentive plan, the woman was an “at-will” worker who would receive a base salary as well as specific sales commissions.  The agreement also identified sales quotas the employee was required to meet and listed her other job duties.  In addition to outlining the woman’s sales requirements and incentives, the document included a confidentiality, non-compete, and non-solicitation clause.  The incentive plan also contained a survivability and merger clause as well as an arbitration provision.

About two years later, the employee executed a subsequent employment agreement.  The second contract included many of the same provisions included in the incentive plan but wholly failed to address the sales commission structure.  Although the second document included an arbitration clause, the employee deleted the provision before signing the contract.  The worker also inserted a provision stating she did not want to waive her right to pursue any future disputes in court.  Finally, the document stated it constituted the entire agreement between the woman and Subsea.

After the woman resigned from her position with Subsea, the business filed a lawsuit against her in Harris County, Texas.  According to the company, the former employee took thousands of proprietary and confidential documents with her when she left Subsea.  In response, the woman filed a counterclaim against Subsea alleging the company owed her unpaid sales commissions.  Subsea next filed a motion to compel the woman’s counterclaims to arbitration.

In its motion, Subsea claimed that the provisions included in the incentive plan applied to the commission payment dispute.  Because of this, the company argued that the woman’s counterclaims were properly subject to the arbitration clause included in the agreement.   The former employee disagreed and stated the arbitration provision was revoked in its entirety when she signed the subsequent employment agreement.  The 133rd District court denied Subsea’s motion to compel arbitration and the company filed an interlocutory appeal with Houston’s 14th District Court of Appeals.

On appeal, the court first stated it would not address whether the woman effectively revoked the arbitration provision included in the incentive agreement when she deleted the arbitral clause from her subsequent employment agreement because commissions were not mentioned in the second document.  Although two contracts that address the same subject matter must normally be interpreted together, the court said the subject matter at issue was not included in both agreements.  As a result, the 14th District held that the arbitral provision was enforceable because the two agreements were not in conflict with regard to the former employee’s sales incentives.  In addition, the appellate court found that the incentive plan clearly stated any commission disputes were subject to arbitration.

Next, the Court of Appeals dismissed the woman’s claim that the incentive plan was no longer applicable because it expired in 2011.  The court said the commission portion of the incentive plan continued in full force beyond 2011 since the parties continued to operate according to its payment terms even after the employment agreement was executed.  Additionally, the appellate court said the woman’s counterclaims were based at least in part on the enforcement of the incentive plan beyond 2011.

After holding the incentive plan controlled the parties’ commission dispute and the arbitration agreement included in the document was valid, Houston’s 14th District Court of Appeals reversed the lower court’s order denying arbitration related to the former emplyee’s counterclaims and remanded the case.

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