Summary
The Supreme Court of Texas considered whether an employer’s arbitration agreement with an at-will employee was enforceable when the employer reserved the unilateral right to abolish or modify personnel policies without notice. The Court held that the agreement was ambiguous because the document did not establish whether the reservation applied to the arbitration agreement. The Court reversed the court of appeals and remanded the case to the trial court for further proceedings to determine the parties’ intent.
Topics
Practice areas
Questions Presented
- Whether the arbitration agreement was enforceable when the employer reserved the unilateral right to abolish or modify any personnel policy without prior notice.
- Whether the agreement's language was ambiguous as to whether the unilateral modification and termination provision applied to the parties' agreement to arbitrate.
- Whether the trial court should determine the parties' intent through further proceedings and an evidentiary hearing.
Holdings
- The arbitration agreement is ambiguous because the document does not establish whether the employer's unrestricted right to unilaterally abolish or modify personnel policies applies to the agreement to arbitrate.
- Because the agreement is ambiguous, the case must be remanded to the trial court to determine what the parties intended by the provision reserving the company's right to unilaterally abolish or modify personnel policies without prior notice.
- The presumption favoring arbitration arises only after the party seeking arbitration establishes that a valid arbitration agreement exists; ordinary contract principles govern that threshold determination.
Key quotations
“We conclude that the arbitration agreement is ambiguous because it is not possible to determine from the document itself whether the unilateral termination right applies to the parties’ agreement to arbitrate, or only to “personnel policies” concerning the at-will employment relationship.”
“A contract is unambiguous if it can be given a definite or certain legal meaning.”
“On the other hand, if the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, creating a fact issue on the parties' intent.”
Factual background
Davidson hired Webster as a mechanic and required him to sign a one-page alternative dispute resolution and employment application document as a condition of at-will employment. The document contained reciprocal promises to submit claims to binding arbitration, but also stated that the company reserved the right to unilaterally abolish or modify any personnel policy without prior notice. After Webster suffered a workplace injury, filed a workers' compensation claim, and later ceased working for Davidson, he sued under section 451 of the Texas Labor Code, alleging retaliatory termination.
Procedural history
Webster sued Davidson for allegedly terminating him in retaliation for filing a workers' compensation claim. Davidson moved to compel arbitration under an alternative dispute resolution policy. The trial court denied the motion, and the court of appeals affirmed, holding the arbitration agreement illusory. The Supreme Court of Texas reversed and remanded for the trial court to determine the parties' intent concerning the agreement's unilateral modification and termination provision.
Remand instructions
The trial court must conduct further proceedings consistent with the opinion to determine the parties' intent regarding whether the company's unilateral right to abolish or modify personnel policies applies to the arbitration agreement. If the material facts concerning intent are controverted, the trial court must conduct an evidentiary hearing.