Arbitration Provisions in Employment Agreements: Don’t Hide the Ball

Chris Hanslik, Craig Lauchner

June 1, 2017

It is not uncommon for Texas companies to have employees sign a number of documents on their first day of employment. Many times those documents include an arbitration clause, which states that the two parties agree to resolve any dispute outside of court.

To ensure an arbitration clause in a set of forms or policies/procedures is enforceable, you should put it front and center, or at a minimum, disclose its existence.

Texas courts are typically quick to enforce arbitration agreements between employers and their employees as long as two simple requirements are met: (1) the employee received notice of the arbitration provision and (2) the employee accepted it.

For most terms included in an employment contract, a court will consider an employee’s signature on the document to be sufficient evidence that the employee received notice of the term. Arbitration agreements, however, might not be afforded the same deference. Recently, a Texas court of appeals weighed in on the enforceability of arbitration clauses tucked away in an employer’s polices and procedures, holding that if the employee is not explicitly notified of the arbitration provision, there is no agreement to arbitrate.

In Doe v. Columbia N. Hills Hosp. Subsidiary, L.P., a hospital implemented a mandatory binding arbitration policy applicable to employment-related claims between it and its employees. The arbitration policy was in a document entitled “Problem solving/Grievance procedures,” which was one of several documents discussed at the hospital’s new-employee orientation program. The new employees were informed that all of the documents discussed at the orientation were accessible to all employees at all times via the hospital intranet. The employer then required that each employee sign an agreement acknowledging that it was the employee’s responsibility to read the documents stored on the hospital’s intranet site. The employer, however, made no specific mention of the arbitration provision included in the documents.

When an employee filed suit in Texas state court, the employer attempted to compel arbitration based on the arbitration policy contained in the policy and procedure documents. The trial court initially enforced the arbitration agreement; however, the appeals court reversed, finding that the employer failed to show that the employee had received explicit notice that employment claims would be subject to arbitration.

In that case, the court drew an important distinction between an employee that merely has access to the documents containing the arbitration agreement, and an employee that has actually accessed the documents containing the arbitration agreement.

Employers who want to have arbitration as a dispute resolution mechanism must take care to ensure that employees understand the arbitration agreement that applies to their employment. While the court in Doe left many questions unanswered, the take away for employers is clear—“notice” means explicit notice.