Texas Appellate Court Finds Employee Did Not Need to Bring Employment Discrimination Case Through Arbitration Process

Mar 4, 2023

Austin Oil and Gas Attorney, Gregory D. Jordan

Austin, TX (Law Firm Newswire) January 25, 2021 – The case illustrates why both employers and employees must take special care to address important issues raised by the opposing party

Late last month, a state appellate court issued a written opinion in a Texas employment discrimination case discussing whether the employee was required to pursue his claim against his employer through the arbitration process. Ultimately, the court concluded that the employee’s decision to file a case in court, rather than pursue arbitration, was permitted.

The Facts of the Case

The plaintiff was employed as a truck washer and detailer. After being fired, he filed an employment discrimination case against his employer, claiming that he was terminated based on his age, disability or perceived disability. In response, the employer filed a motion to compel arbitration. In support of its motion, the employer presented several documents, including two agreements signed by the employee, and a description of the plaintiff’s job. In each agreement, the employee indicated that he agreed to waive his right to pursue a case against his employer in a court of law, and that any claim arising from his employment would be resolved through arbitration. Both agreements were in English.

The employee raised several arguments as to why the arbitration agreements were invalid. Primarily, the employee argued that the agreement was procedurally unconscionable because he did not read English, was not provided with a translation, and did not understand the contracts. He also claimed the agreement was substantively unconscionable because it excluded certain damages that the law requires, including exemplary and punitive damages.

Unconscionability is a defense claiming that the contract, or how the contract was formed, is somehow unfair. There are two types of unconscionability: procedural and substantive. Procedural unconscionability focuses on the relationship between the parties, including the existence of an uneven power dynamic. Substantive unconscionability focuses on the terms of the contract, and whether they are so one-sided that enforcement of the agreement would be unfair. If a court finds that a contract is unconscionable, the court can refuse to enforce it.

After reviewing the evidence presented, the court denied the employer’s motion to compel arbitration. When the employer asked why the motion was denied, the judge orally provided two reasons. First, the defendant fell into the transportation-worker exemption under the
Federal Arbitration Act. The judge also noted that the arbitration agreement was procedurally unconscionable. However, days later, when the judge entered the written order denying the motion, no reasoning for the judge’s decision was provided.

The Case on Appeal

The employer appealed the denial of its motion to compel arbitration. On appeal, the employer attacked both of the lower court’s reasons for denying its motion. Specifically, the employer argued that the employee failed to establish that he fell within an exception to the Federal Arbitration Act, and that illiteracy alone is insufficient to show that an arbitration agreement is unconscionable. In response, and in addition to the other arguments he raised below, the employee argued that the arbitration agreement was substantively unconscionable because it “excludes certain remedies that the law provides; specifically, exemplary and punitive damages.”

The appellate court began its analysis by noting the applicable law. To successful compel arbitration, a party must show:

1.) The existence of a valid arbitration agreement; and
2.) That the claims brought by the opposing party fit within the scope of that agreement.

If the party seeking to compel arbitration meets this initial burden, then the burden shifts to the other party to raise a defense. Possible defenses to a motion to compel arbitration include unconscionability, duress, fraudulent inducement, and revocation. The court also noted that, because the lower court did not provide its reasons for denying the employer’s motion, the employer “must show that each independent ground alleged to the trial court by the prevailing party is insufficient to support the order.”

In response, the employee argued that the court could have made its decision based on the substantive unconscionability of the agreement. The employee went on to claim that, because the employer failed to address this alternate ground in its appeal, the case must be resolved in the employee’s favor.

Here, the court explained that it was compelled to “accept the validity of the unchallenged ground of substantive unconscionability and affirm the trial court’s ruling.” The court acknowledged that the application of this rule could result in “harsh consequences.” However, the court explained that such a rule is essential because it allows parties and appellate courts to “to look only to a single place to determine why the trial court granted an order, rather than requiring these parties to parse other documents to determine the bases of an order.”

Austin employment law attorney, Gregory Jordan, reminds employees of the importance of understanding arbitration commitments before entering into an employment agreement. Grasping the terms of an employment agreement, especially those with arbitration provisions, is crucial to understanding what rights an employee has in the event of an employment dispute. Additionally, employees should consider the rights they may give up by entering into an arbitration agreement.

Attorney Jordan also reminds employers that it is important to have a well-written and consistently enforced policy if one intends to enforce an arbitration agreement. An employer’s failure to do so may result in the arbitration agreement becoming unenforceable.

At the Law Offices of Gregory D. Jordan, Jordan represents both employers and employees in all types of Texas employment lawsuits and arbitration matters. Attorney Jordan has over 30 years of relevant experience assisting businesses and employees in Travis County and throughout Central Texas. Contact the Law Offices of Gregory D. Jordan at http://www.theaustintriallawyer.com/.

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