Arbitration agreement found unenforceable because employer could modify it without advance notice to the employee

October 17, 2017

An employee had a dispute with his employer arising out of personal injuries on a worksite. The employer’s written Dispute Resolution Policy contained an arbitration provision. The employee asserted the arbitration provision was unenforceable because the employer was permitted to modify or terminate Dispute Resolution Policy at its sole discretion. As a result, the employee argued the arbitration provision was an illusory promise, that is, it was unenforceable due to lack of mutuality because only one side was bound to perform under the agreement.

The court held that the arbitration provision in this instance was unenforceable. Under Texas law, an agreement giving the employer power to modify or terminate the agreement is enforceable (and not illusory) so long as the power: (1) extends only to prospective claims; (2) applies equally to the employer’s and employee’s claims; and (3) requires the employer to give advance notice to the employee before the modification or termination is effective. In this case, the Dispute Resolution Policy complied with the first two criteria, but failed the third because it permitted the employer to modify the policy without providing advance notice to the employee. The arbitration provision was therefore unenforceable.

This case illustrates the importance of careful drafting of arbitration provisions to ensure their enforceability.

Henry & Sons Construction Co., Inc. v. Campos , 510 S.W.3d 689 (Tex. App.–Corpus Christi Oct. 1, 2016, pet. denied).

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