Texas court review of arbitration clause illustrates potential pitfalls

The Texas Supreme Court recently upheld a mandatory arbitration clause contained in an employee handbook. The nine-year saga illustrates the risks of placing binding arbitration documents within nonbinding employment documents. For this reason, this case presents a helpful reminder for employers who want to have employee claims in arbitration to use properly drafted arbitration clauses.

Facts
Yvonne Cardwell sued her employer, Whataburger, in 2013 for a workplace injury. The nonbinding employee handbook contained a binding arbitration agreement, which Cardwell had initialed. Whataburger moved to compel arbitration under the agreement.

Over the next nine years, the case made its way to the Texas Supreme Court—twice. After several technical issues were resolved, the Texas Supreme Court heard arguments on if the arbitration agreement was unenforceable because it was contained in a nonbinding document that Whataburger could unilaterally revoke. Illusory provisions (provisions where one side is bound to perform, or in this case, allowed to modify) are generally disfavored in contract law and often are grounds to invalidate the agreement.

The employee handbook was 51 pages long and contained more than 100 topics in its table of contents, one of which was the arbitration agreement. The handbook acknowledgement sheet, which Cardwell signed, said the handbook was “intended to be used as a guide only [and that] its provisions are not conditions of employment and may be modified, revoked, changed or deleted by [Whataburger] at any time.”