Jottings By An Employer's Lawyer

Thursday, September 11, 2003

5th Cir. Affirms Lower Court's Striking of Punitive Damages Ban to Make Arbitration Agreement Enforceable


The Fifth Circuit remains a court that is favorably disposed to arbitration as a condition of employment. In Hadnot v. Bay, Ltd. (5th Cir. 9/11/03) [pdf] the arbitration agreement banned the arbitrator from awarding exemplary and punitive damages. Since such a claim would be permitted under Title VII, the basis for the suit, Hadnot argued that the agreement should not be enforced. Rather than disallowing arbitration, the district court struck the ban on the arbitrator's authority and ordered that the case be arbitrated. The Fifth Circuit upheld the action, finding that now that punitive damages were authorized, there was no reason not to require arbitration.

The Fifth Circuit also rejected Hadnot's contention that there was no consideration, relying on the famous language in Light v. Centel Cellular that a promise which depends on continued employment is illusory, so that no employment at will agreement can support a contract. The Fifth Circuit holds it is In Re Halliburton not Light which controls. The agreement was made at the time of hiring, and both parties were bound no matter how long or short the employment might be.

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