Texas Supreme Court Holds Arbitration Agreement Does Not Require Savings Clause

The Texas Supreme Court has held that an arbitration agreement signed as a condition of continued employment was not illusory and did not require a savings clause.

In In re 24R, Inc., D/B/A The Boot Jack, No. 09-1025 (Tex. Oct. 22, 2010), Frances Cabrera was an at-will employee for 24R, Inc. d/b/a “The Boot Jack” for approximately 15 years. In 2003, 2004 and 2005 she signed an arbitration agreement as a condition of continued employment. In 2007, she developed a medical condition and was ordered by her doctor to eat all of her meals prior to 6 pm. Approximately four months later, Cabrera was terminated by The Boot Jack. She filed suit alleging age and disability discrimination on the theory she was terminated because she requested accommodations to comply with the directions of her doctor. The Boot Jack filed a motion to compel arbitration pursuant to the parties’ 2005 arbitration agreement. The trial court denied the motion to compel arbitration and The Boot Jack sought mandamus relief in the court of appeals. The Corpus Christi Appeals Court denied The Boot Jack’s writ of mandamus (In re 24R, Inc., ___ S.W.3d ___ (Tex. App. Corpus Christi). The Boot Jack then sought mandamus relief from the Texas Supreme Court.

Cabrera’s case relied upon the Texas Supreme Court’s decision in In re Halliburton, 80 S.W.3d 566 (Tex. 2002) and a 2003 appellate decision, In re C & H News Co., 133 S.W.3d 642 (Tex. App. – Corpus Christi 2003, orig. proceeding). In Halliburton, the Texas Supreme Court held that the arbitration agreement at issue was not illusory because, although the employer “explicitly reserved the right to unilaterally modify or discontinue the dispute resolution program,” a ten-day notice provision and another provision which stated any amendment could only apply prospectively functioned as a “savings clause” which prevented the employer from avoiding its contractual obligation to arbitrate. Cabrera also relied on the ruling in C & H News which held that an arbitration agreement which incorporated an employee handbook by reference was illusory and unenforceable because the “employer retained the right to unilaterally change the handbook at anytime without prior notice.”

Cabrera argued that the arbitration agreement lacked consideration and was illusory because “The Boot Jack retained the right to amend the agreement and was not mutually bound,” and The Boot Jack’s employee manual retained the power to modify or abolish any personnel policy, including the arbitration agreement. The Court disagreed, however, and stated the employee manual was not part of her employment contract because it included an express disclaimer that the “policies and procedures in this manual are not intended to be contractual commitments . . .”

The Texas Supreme Court distinguished C & H News, because it found that The Boot Jack’s employee policy manual was a wholly separate document “that does not impose any contractual obligations.” The mere fact that “language in the employee manual recognizes the existence of the arbitration agreement . . . does not diminish the validity of the arbitration agreement as a stand-alone contract.” According to the Court, because the employment contract and arbitration agreement did not incorporate the employee policy manual such that The Boot Jack could have modified the terms at any time without prior notice, the contract and arbitration agreement were not illusory and therefore did not require a Halliburton savings clause.

After finding that the arbitration agreement was not illusory, the Texas Supreme Court held that the trial court erred by refusing to compel arbitration, conditionally granted mandamus relief and directed the trial court to vacate its order denying The Boot Jack’s motion to compel arbitration.

Disputing blogged here about a similar Texas Supreme Court opinion issued in 2006.

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