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IMPLIED AGREEMENT TO ARBITRATE ALL EMPLOYMENT DISPUTES

James Myers worked for Halliburton and its predecessors for about 30 years. In November of 1997, Halliburton sent written notice to all its employees that it was adopting a Dispute Resolution Program. As part of the program, all disputes between employees and Halliburton had to be resolved by binding arbitration. No lawsuits allowed. In the notice, Halliburton informed its employees that they would automatically accept the program by continuing to work after January 1, 1998. Myers got the notice, and continued to work after January 1.

Later in 1998, Halliburton demoted Myers from his position as General Welding Foreman, for lack of interpersonal skills. In his anger, Myers did what every red blooded American has a right to do, he went to see a lawyer. Turns out this lawyer saw a basis for a racial and age discrimination case. And so, in October of 1999, off to court went Myers. But Halliburton said "not so fast" and asked the court to throw out the case and force arbitration, just like its new policy required. The trial court said no. The Court of Appeals said no. Nearly three years later, the Fifth Circuit Court of Appeals said "O.K., now go arbitrate."

This particular situation arose under the Federal Arbitration Act because it involved interstate commerce. The party asserting a change to an at-will employment contract must:

give uneqivocal notice containing definite changes to the employment; and
show the other party accepted the change. If the employee continues to work with knowledge of the changes, the employee has accepted the changes as a matter of law.

So, it's basically "accept this or quit." That's quite a catch-22 for most employees, in reality, but that's the law. And that puts a lot of opportunity in the hands of employers.

Myers tried nearly every argument to get around this result. He even recited Equal Employment Opportunity Commission Notice No. 915.00 (July 10, 1997), where the EEOC formally stated that it disfavored mandatory arbitration of discrimination claims. The Texas Supremes merely seemed somewhat miffed that Myers thought the EEOC was a higher authority than the courts.

The Texas Supremes did note that once a new policy is in place, it is very difficult if not impossible to change it retroactively. For disputes that arise while an arbitration policy is in place, those disputes must be handled by that policy. This means every change in policy should be considered thoroughly, and monitored for any needed additional changes.

The Texas Supremes also observed that policies must not be substantively unconscionable, i.e. unfair in the way it works. This is decided on a case by case basis. So, for example, both employee and employer should be subject to mandatory arbitration. The arbitrator should be neutral. There should be some pre-hearing discovery available, although it may be less than under traditional lawsuit discovery. The employee should not have to pay any unreasonable costs or fees. And most, if not all, remedies available in traditional lawsuits should be available in arbitration, including awarding attorneys fees to the employee if he wins.

We are now seeing a substantial body of case law develop regarding arbitration agreements, and they generally favor and enforce mandatory arbitration, which is a good thing. And this particular case raises at least two very interesting thoughts.

First, if the remedies are the same in arbitration and jury trials, why do plaintiffs lawyers, such as Myers' lawyer, work so hard to get out of arbitration and in front of a jury? Well, remember that in many cases plaintiffs lawyers work on contingency. The more the client wins, the more they get paid. So the only logical explanation is that plaintiffs lawyers believe they'd get more money out of a jury than an arbitrator. And if plaintiffs lawyers get paid by the hour instead, then logically a jury trial must give them the opportunity to bill more hours which they can recover for if they win. Finally, my guess is that jury panels are going to have far more employees than employers on it, and so there may be a natural bent favoring employees, as in "there but for the grace of God go I."

And the second point is this, and it applies equally to both parties. Where is the justice when the parties have to wait nearly three years just to decide whether to fight in arbitration or in court? This case was filed in October, 1999, for events in 1998, and this decision, very early in the overall process, came down in May of 2002. Surely justice should be served faster than that.

Could your business use a mandatory arbitration policy? Smaller businesses can gain the most by using arbitration to reduce costs associated with employee disputes, because they can afford costly battles the least.