Jottings By An Employer's Lawyer

Saturday, January 03, 2004

Texas Supreme Court - Careful Drafting A Must On Arbitration Programs

More than one year after the case was argued, a divided Texas Supreme Court holds an agreement to arbitrate intermixed with other personnel related language, coupled with a retention of the right to unilaterally terminate or modify any personnel policy without prior notice, is ambiguous and must be sent back to the trial court for a factual determination as to whether the reservation is applicable to the arbitration agreement. J.M. Davidson, Inc. v. Webster (Tx. 12/31/03) [pdf]. Justice Jefferson takes the occasion to note that while a strong presumption exists in favor of arbitration, that presumption arises only after a valid agreement to arbitrate has been established. In a footnote he perhaps foreshadows what the court below should find if it finds the clause is applicable to the arbitration agreement, noting that "most courts" hold that the ability to unilaterally modify or terminate an agreement to arbitrate is illusory and unenforceable. What Justice Jefferson makes clear is enforceable is an agreement which allows modification only after a period of notice that does not apply to any pre-existing claim, such as the one approved by the court in Halliburton.

Justice Schneider in his dissent, joined by Justice O'Neill, would find the agreement not ambiguous and clearly illusory. Justice Smith in his dissent would have found the agreement not ambiguous and enforceable. Justice Jefferson wryly notes that the division in both the Court of Appeals and the Supreme Court of the meaning of the agreement is evidence of the ambiguity.


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