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Worth the Wait – Texas Supreme Court Tells The Trial Judge To Compel Arbitration Nine Years After the Lawsuit was Filed


By Linda C. Schoonmaker and Tayte Doddy, Summer Fellow

Seyfarth Synopsis:  In 2013, Yvonne Cardwell, a dishwasher at a Whataburger in El Paso, Texas, was injured when a heavy object fell off of a top shelf and hit her in the head. Whataburger moved to compel the lawsuit she filed against her employer to arbitration, pursuant to its mandatory arbitration policy.

Whataburger’s mandatory arbitration policy (“Policy”) required all employees, as a form of accepting employment, to agree to submit all legally recognized claims and disputes related to their employment to arbitration. The Policy also bound Whataburger to the same terms, but included a provision stating  “any employee who continues to work for the company for more than 30 days after any amendment in the company Arbitration policy shall be deemed to have consented to the changes in the Policy.” The exception to this provision, however, was that once facts gave rise to a legally recognized claim or dispute, Whataburger had no right to unilaterally modify the Policy relating to the claim or dispute without the mutual consent of both parties. The Policy also required Whataburger to give its employees at least 30 days advanced notice of the any amendment.

The Policy was contained in the Whataburger Employee Handbook (“Handbook”). The Handbook was labeled as a “guide”, and Whataburger reserved the right to modify or delete any part of the Handbook without notice. Cardwell signed an acknowledgement form indicating that she had received the Handbook and Policy, and initialed a paragraph that expressly stated all claims or disputes will be submitted to arbitration.

In August 2013 the trial court found the Policy to be unconscionable and denied Whataburger’s motion to compel arbitration. On appeal in October 2014, the court of appeals rejected the trial court’s unconscionability analysis, reversed its order, and remanded with instructions to grant Whataburger’s motion to compel arbitration. But, the court of appeals failed to adjudicate cross points Cardwell had briefed in support of the trial court’s order. The Texas Supreme Court granted Cardwell’s petition for review, and remanded to the court of appeals to address Cardwell’s arguments.

On remand, the court of appeals rejected all of Cardwell’s remaining arguments except one: that the Policy was illusory because Whataburger could revoke it at any time. Conflating the non-binding employee Handbook and binding arbitration Policy as one entity, Cardwell argued that since the handbook could be modified at any time and the arbitration policy was included within the handbook, the entire policy was illusory because Whataburger retained the right to unilaterally modify the Policy. The court of appeals declined to resolve the issue and remanded the case back to the trial court.

Nearly five years after the initial filing, the trial court denied the motion to compel arbitration again. However, the trial court clerk failed to give Whataburger or Cardwell notice of the order denying the motion to compel arbitration. There is generally a 20-day timeline to appeal this kind of order, and if a party does not receive notice within 20 days after the order, the timeline for appeal is extended to a maximum of 90 days. Whataburger was not informed of the trial order until 153 days had passed, nearly five months after the order was issued. Whataburger immediately requested reconsideration from the trial court due to being stripped of its right to appeal. The trial court denied the motion, and Whataburger requested mandamus relief from the court of appeals. The court of appeals also denied the relief, and Whataburger then requested mandamus relief from the Supreme Court of Texas.

Nine years after the initial filing of the lawsuit, the Texas Supreme Court held that Whataburger was not given an adequate chance to appeal, that its promise to arbitrate was not illusory or unenforceable, and that the acknowledgement referring to the Policy did not condition the parties’ promises to arbitrate on an employee’s continued, at-will employment. The Court cited the trial court clerk’s failure to notify the parties of its order and the trial court’s erroneous interpretation of the Policy and Acknowledgement as reasons for its deciding the trial court abused its discretion in failing to compel arbitration.

TAKEAWAYS

Employers should be cautious about how an arbitration policy is communicated to employees, including where it is placed. When binding documents like an arbitration policy and non-binding documents like an employee handbook are combined in a single publication, there is room for employees to argue against the binding nature of the arbitration policy.

To avoid this argument it is prudent to separate all binding and non-binding documents so that there is very little potential for confusion . Employers should also include language in the arbitration agreement that expressly limits the employer’s ability to unilaterally change the policy after an event giving rise to a claim has occurred to reduce the chance of a court finding that the agreement is unconscionable or illusory. However, an employer still may have to wait a long time before the final decision regarding compelling arbitration is made-but hopefully less than 9 years.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Workplace Counseling & Solutions Team or the Workplace Policies and Handbooks Team.



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