Jottings By An Employer's Lawyer

Tuesday, September 28, 2004

Why the FAA Is Important If You Want To Arbitrate - A Texas Lesson

Texas is unique in that it is the only state where workers compensation insurance is not mandatory. Because a substantial number of employees are not covered (between 25 to 30% according to the last information I have heard) there is a whole body of law that has grown up around the rights of employees who are injured on the job, but have no workers compensation insurance. Many (in fact I would say most) employers who do not carry workers compensation insurance have alternative plans, frequently set up under ERISA, which provide similar benefits and most substitute binding arbitration for litigation of any disputes. Originally many of those plans permitted pre-injury waivers of negligence claims. That option has since been removed by legislative action.

But what happens when one of those plans with a pre-injury waiver and binding arbitration becomes the subject of a lawsuit? Here, the plaintiff argued that the waiver provision invalidated the agreement, thus negating the arbitration agreement. The trial court agreed and refused to order the case to arbitration. But on appeal, the Court of Appeals, reminds us all of the trumping effect of the Federal Arbitration Act. Where it is applicable, as it was here, it overrides any state law waiver arguments, thus the case was sent to arbitration. In Re: R & R Personnel Specialists of Tyler, Inc. (Tx. App. - Tyler 8/1804) [pdf].

Although the choice of forum is lost, the plaintiff is not without hope as it appears nothing would prevent the arbitrator from holding the waiver provision invalid in accordance with Texas law. The arbitrator is also clearly entitled to address other issues raised by the plaintiff as to whether the employer had failed to comply with the pre-requisites to arbitration.

While this particular situation is unique to Texas, the powerful impact of the FAA is not.


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