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Steering Clear of the Runaway Jury

January 5, 2004

Over the last few years, courts have made it clear that they will allow employment-related disputes to be submitted to arbitration where the employer and employee have agreed to do so. As a result, many employers have hopped on board the arbitration bandwagon, having their employees sign "arbitration agreements," in which the employer and employee mutually agree to submit any disputes between them (such as discrimination or harassment claims) to an arbitrator, rather than a judge, and more importantly, a jury.

In arbitration, the parties select a neutral arbitrator (typically an attorney), who conducts a hearing, considers evidence and witness testimony, and issues a decision. Undoubtedly, arbitration has its upsides. For starters, the case is taken out of the hands of a jury, reducing the possibility of an outlandish and unwarranted "sympathy verdict." Proponents of arbitration will also tell you that, because of the more lax rules governing the pre-hearing process, arbitration cases are resolved more quickly than court cases and result in lower legal fees.

However, arbitration does have its downsides. First, it is not cheap. Between administrative fees and the arbitrator's compensation, the cost of arbitrating a relatively simple employment discrimination claim can be well over $5,000. And because many states, including Texas, require that the costs borne by the employee not be prohibitive, the employer will typically have to incur most of these costs. Second, appeal rights in arbitration are typically very limited, so you are usually stuck with a bad decision if you get one. Finally, and perhaps most important, arbitrators are extremely reluctant to dismiss meritless cases before the hearing. Consequently, if the employee's case is weak, you may still have to go to "trial" (the hearing before the arbitrator), whereas a pre-trial motion for summary judgment would dispose of the same case if it were proceeding in court.

One alternative to arbitration agreements is a "jury waiver agreement." As the name implies, with jury waiver agreements, the parties agree that if a dispute arises and suit is filed, the parties waive their right to a jury trial. The case is still filed in court, but if the matter proceeds to trial, the trial judge hears the testimony and decides the case.

Until recently, the only question about jury waiver agreements is whether they are legal. However, the Houston Court of Appeals recently shed some light on that question in In re Wells Fargo Bank Minnesota N.A. The court of appeals found that, as in many other states, jury waiver agreements are valid in Texas despite the fact that the Texas Constitution guarantees the right to a jury trial in civil cases. In doing so, it was the first Texas appellate court to directly address this issue.

A few caveats must be given about the Wells Fargo decision. To begin with, it was not an employment-related case, but rather a business dispute over a mortgage note. A court could find that jury waiver agreements between businesses are enforceable, but such agreements are unenforceable between employers and employees, where the employee has less bargaining power to object to an employer's demand for the agreement as a condition of employment. However, the same arguments were made regarding arbitration agreements, and those have been uniformly enforced in the employment context, so it is likely that the same will be true of jury waiver agreements. Also, Wells Fargo is a court of appeals decision and although it may be appealed further, the Texas Supreme Court has not yet issued a ruling on this issue. Finally, the Wells Fargo Court cautioned that jury waiver agreements must be knowing and voluntary. This may mean that the language waiving the right to a jury trial must be conspicuous (for example, in bold print), not tucked away in fine print in the back of an employee handbook.

The advantages to jury waiver agreements are obvious. First, as with arbitration, the risk of a runaway jury is avoided. However, unlike arbitration, pre-trial procedures such as motions for summary judgment that can get the case dismissed early are still a viable option. In addition, the right to appeal is still available. Finally, the fees and costs of arbitration are avoided.

While there may still be some question about the validity of jury waiver agreements for employment-related cases, such agreements definitely merit consideration by employers who want to steer clear of the runaway jury.

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