Texas Supreme Court Reaffirms Enforceability Of Arbitration Provisions Contained In Employment Agreements That Are Not Conditioned On An Employee's Continued At-Will Employment

• Published date: 05 September 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Kane Russell Coleman Logan
• Author: Jamie Wilson

Arbitration provisions in employment agreements have become increasingly more commonplace in recent years as companies continue to value the confidentiality and the potential for quick resolution that arbitration offers in employment disputes. Both Federal and State legislatures have continued to develop policies favoring arbitration as an alternative means to resolving legal disputes. However, arbitration agreements contained in employment agreements run the risk of being unenforceable if they are interpreted as being conditioned on an employee's at-will employment. The public policy behind this is to prevent one of the parties to the agreement from avoiding performance by simply terminating the employment relationship, thereby rendering the agreement to arbitrate illusory.

Under Texas law, an employee's at-will employment does not prohibit the employee and employer from entering into other agreements as long as the employee's continued employment is not relied on as consideration for the agreement.¹ The Texas Supreme Court has drawn a distinction between arbitration agreements that are conditioned on an employee's continued employment and those that are accepted by an employee's continuing employment, holding that the latter does not render the agreement unenforceable.² Therefore, it is important for companies to take careful measures when drafting arbitration policies to ensure they are not conditioned on their employees' at-will employment.

In interpreting arbitration agreements, traditional principles of contracts apply.³ The plain language controls, '[w]ords must be construed 'in the context in which they are used,'" and courts must "examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless."⁴

In the Texas Supreme Court's recent decision in In re Whataburger Restaurants LLC, the Court enforced an arbitration agreement in an employment agreement which stated:

All employees, by accepting employment or by continuing employment after the implementation of [the company's arbitration policy], shall be required to submit any legally recognized claim or dispute related to their employment . . . to arbitration . . . . An Employee who chooses to continue employment for at least thirty (30) days after receiving written notice of an amendment or modification of the Policy shall be deemed to have consented.⁵

The employee argued that this agreement was illusory...