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Can a Texas Employer Impose an Arbitration Agreement on Employees, Even if the Employees Have Not Expressly Consented?

Can a Texas Employer Impose an Arbitration Agreement on Employees, Even if the Employees Have Not Expressly Consented?

The Fair Labor Standards Act (FLSA) is a federal law that governs certain working conditions, including the right to receive overtime pay. But individual employment agreements are still largely governed by state law, and in places like Texas, employers are often able to leverage state law to their advantage. For example, Texas employers may force employees into accepting an agreement for binding arbitration that deprives them of their right to enforce their rights under the FLSA and similar labor laws in court.

Fifth Circuit Rules for Employer Despite "Troubling Implications" Of Its Claim

A recent decision by the U.S. Fifth Circuit Court of Appeals, Kubala v. Supreme Production Services, Inc., 2016 WL 3923866 (5th Cir. July 20, 2016), illustrates the perilous legal position that many Texas workers face when it comes to forced arbitration. In this case, an oilfield worker sued his employer, alleging he and other employees were illegally denied overtime pay as required by the FLSA. Two days after this lawsuit was filed, and before, the employer claimed, it learned of the case, the employer announced that anyone who continued to work for the company would be subject to a "new arbitration policy to govern all employment-related disputes."

An arbitration agreement is one in which the employees surrender their rights to sue the employer in court, and to have their case decided by a jury. Instead, under such an agreement, any dispute must be submitted to a private arbitrator whose hefty fee the employer frequently pays. While arbitration can be useful in certain kinds of cases in which the parties have equal bargaining power, it is frequently abused in the context of employment law where the employee is relatively powerless compared to the employer.

In fact, in Kubala, the plaintiff refused to sign the agreement. However, as the Court explained in Kubala, the employee did not have to sign the agreement to be bound by its terms. Instead, the fact that he continued to show up for work after the employer gave notice of the arbitration agreement was sufficient to create a binding contract.

The Court even deemed irrelevant the fact that the employer imposed this new arbitration policy after the plaintiff filed his lawsuit. It based this conclusion on the employer's claim that it had no notice of the lawsuit, which was filed only two days prior.

The purported arbitration agreement in Kubala contained something called a "delegation clause." The clause means that it not only applied to the substance of an employee's dispute (i.e., whether or not the employer violated the FLSA), but also to any questions regarding the applicability of the arbitration agreement itself. As a result, held the Court, the case must go to arbitration so that the arbitrator (and not the Court) can decide whether or not the agreement requires Kubala to arbitrate his claims under the circumstances of this case. (Of course, the private arbitrator will have financial incentives to rule that the case must be decided in arbitration, and not by a judge.)

As Judge Higginbotham noted, the employer's claim has "troubling implications." Although he concurred in the Court's decision, Judge Higginbotham specifically suggested that it was possible this decision may be abused by Texas employers in the future. After all, he noted, in light of Kubala, an employer may be tempted threaten to fire an employee after learning the employee has sued them under the FLSA unless he or she agrees to arbitration where no previous arbitration agreement existed. He concurred in order to warn employers against just such a maneuver.

Get Help from An Austin Employment Attorney

If you have a potential FLSA or employment discrimination claim against your employer, it is important that you receive timely legal assistance. A central Texas employment lawyer can advise you of your rights under the law and help you fight for any compensation that you may be entitled to. Contact the Moreland Law Firm, P.C., at (512) 782-2293 to speak with an attorney right away.

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