When is an arbitration clause illusory and, therefore, unenforceable? The Texas Supreme Court recently decided this issue in an employment context in In re Whataburger Restaurants LLC.

In February 2013 Yvonne Cardwell sued her employer, Whataburger Restaurants LLC, claiming she had been injured while working at a Whataburger restaurant in El Paso, Texas. At the time she was hired, Cardwell signed an acknowledgement that she was as at-will employee and agreed to the policies in the 51-page Employee Handbook.  The Handbook included a provision requiring all workplace injury claims to be submitted to arbitration. After Cardwell filed suit, Whataburger moved to compel arbitration based on the arbitration provision.

Among other arguments, Cardwell asserted that the arbitration policy was illusory because Whataburger could revoke it at any time. The Employee Handbook contained the boilerplate language that the Handbook and its many provisions could be modified, revoked, changed, or deleted by Whataburger “at any time with or without notice.”

The Texas Supreme Court held that Whataburger’s arbitration policy was not illusory.  According to the Court, the arbitration policy had “definite legal meaning” and was not encumbered by the provision contained in the Handbook permitting Whataburger to revoke or modify the policy. To reach this holding, the Court examined the arbitration provision and observed that it did not incorporate or reference any other provisions from the Handbook. On the contrary, the arbitration policy in the Employee Handbook required Whataburger to give Cardwell 30-days’ notice of any alterations, modifications, or amendments to that policy. In the Court’s eyes, such restrictions on Whataburger’s ability to modify the arbitration policy established that the clause was independent of the boilerplate language in the Handbook and was not illusory.

The Court’s opinion presents a clear warning to employers and contractors about the dangers of including arbitration provisions in agreements that can be unilaterally modified or revoked. The attorneys in our Austin and Dallas offices have extensive experience negotiating, interpreting and litigating arbitration provisions and are available to assist you at info@gstexlaw.com.

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