Arbitration Agreements in Employee Handbooks: Are they Enforceable?

June 19, 2006

Employees in Texas are generally considered “at-will” employees. This means the employer may modify the terms and conditions of an employee’s employment at any time with or without cause, or notice. If the employer notifies the employee of the modifications, and the employee continues working after being notified of them, the employee is deemed to have accepted those changes. Mutual promises to submit employment disputes to arbitration are also legally enforceable because both parties are bound by promises to arbitrate.

Problems can occur, however, when the arbitration agreement is contained in an employee handbook, especially when it is a handbook the employer retains the right to unilaterally change. If an employer has the unilateral, unrestricted right to modify the handbook, and the arbitration agreement is in the handbook, there is a good chance a court would find the agreement unenforceable. This is because the employer’s ability to arbitrarily change the arbitration agreement theoretically permits the employer to cancel or void arbitration agreements, and its employees would, consequently, receive nothing in exchange for their unconditional promises to arbitrate. The end result is that a court would, in all likelihood, refuse to enforce the arbitration agreement and the employee would be free to pursue her claims in court.

To be safe, employers should not include arbitration agreements in their employee handbooks. Instead, arbitration agreements should be stand-alone documents. Employers whose arbitration agreements are contained in employee handbooks should ensure their handbook’s unilateral modification language does not apply to the arbitration provisions.

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