San Antonio Employment Law Blog : San Antonio Employment Lawyer & Attorney : Thomas Crane Law Firm : South Texas, Bexar County TX Wage & Discrimination Issues

In Carey v. 24 Hour Fitness, USA, Inc., No. 10-20945, (5th Cir. 1/25/12),we have another caes regarding an arbitration clause in an employee handbook.  But, this time, the court of appeals found that the arbitration clause was not binding. The cause prohibited entering into any class actions based on the Fair Labor Standards act.  The employee, John Carey, however, did enter into an FLSA class action. 24 Hour Fitness sought to stay the class action and force arbitration.  The district court denied the stay and found the arbitration agreement to be illusory.  The Fifth Circuit sustained the lower court.

Under Texas contract law, an agreement which allows one party to unilaterally make changes to the agreement retroactively is considered illusory.  Such an agreement is not a genuine agreement.  In this case, the Fifth Circuit found that 24 Hour Fitness retained the right to amend the employee handbook, including the arbitration clause, at any time with no limit.  The court fiound the 24 Hour Fitness arbitration agreement different from that in other cases, in which the handbook was subject to change, but not if any complaint had already been lodged. 

The arbitration agreement in the 24 Hour Fitness case allowed the employer to "revise, delete, and add to" the employee handbook at any time.  There was no limit on its ability to do so.  the agreement, thus, applied to the employee but allowed the employer to slip out of it if it chose.  This failure to make the agreement truly binding rendered the agreement "illusory,: said the court.

24 Hour Fitness argued that it did not have an express ability to make changes retroactively.  But, noted the court, Texas law presumes retroactive application if the agreement is silent on the subject.  See the opinion here. 

The Fifth Circuit has overruled similar arguments made here by the plaintiff in other cases.  It seems that the law of arbitration agreements is still evolving. 

This decision also reflects the challenge of using employee handbooks.  Employee handbooks benefit employers because they prescribe procedures for counseling or terminating employees.  Such procedures make it far easier for employers to win claims for unemployment benefits.  But, employee handbooks can become contracts - meaning the failure to follow discipline procedures in the book may give rise to breach of contract claims by an employee.  The employer then responds with clauses providing that the employee handbook is not a contract and can be changed at any time.  So, how does the employer insert an arbitration clause without making the rest of the handbook a contract?  This decision suggests that the employer should at least make it clear that it can change the handbook, but such changes would not apply to any pending claims of discrimination or FLSA violations. 

But, in the end, it is hard to eat your cake and eat it too.  There are limits to how much we can squeeze into any one contract. 

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The matter has been litigated for a month.  Criminal defense lawyers and others would gather and watch the motion for new trial filed in the case of Kathleen Pierce.  She was convicted of embezzlement last January.  But, her lawyer challenged the District Attorney's unheard of warrant served during the trial.  The DA believed that Ms. Pierce's lawyer, Tony Reyes, was using documents which were "stolen" from Ms. Pierce's employer.  The Assistant DA prosecuting the case asked to see the documents.  Mr. Reyes said she would see them as the case progressed, because he would use some of them as evidence.  The DA became convinced the documents were stolen from Ms. Pierce's employer.  Ms. Pierce was on trial for embezzling from her employer. 

The Assistant DA procured a search warrant and served it on Mr. Reyes while the jury was out of the court room.  The search warrant accused Mr. Reyes of participating in some crime.  The DA physically siezed the papers from Mr. Reyes' briefcase.  Ms. Pierce was convicted.  Mr. Reyes filed a motion asking for a new trial, saying the incident upset him so much that he could not effectively represent Ms. Pierce after the siezure.  The judge finally agreed after a month of testimony.  Judge Ray Angelini overturned the conviction.  See San Antonio Express News report. 

It is very unusual for a DA to search a defense attorney's personal possessions during a trial.  The incident has galvanized the local criminal defense bar.  The several days of testimony filled the court room with defense lawyers and others watching the proceedings.  

And, the legal issue is were the documents actually stolen from her employer?  Mere possession of an employer's documents do not make them stolen.  Many employers have policies against taking work records home.  But, many employers do not observe that policy.  Often, such policies are ignored.  If so, then work records may be taken home.  

The DA says hey were stolen.  But, were they really stolen? What an employer say about its policies is important.  More important is what the employer actually does. 

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In a recent decision, the US Sixth Circuit Court of Appeals found that an arbitration policy referenced in an employee handbook was not binding on the employee.  In Hergenreder v. Bickford Senior Living Group, LLC, No. 10-1474 (6th Cir. 6/8/2011), the employee was a nurse who suffered from cancer shortly after starting to work for Bickford.  She attempted to sue after she was terminated.  The employer claimed the arbitration policy applied and the federal district court agreed.  But, now the appellate court has reversed and has allowed Ms. Hergenreder's case to proceed. See decision.  

The purported arbitration clause was contained in a dispute resolution clause.  In one brief sentence, the employee handbook said there was a dispute resolution clause and the employee should look at it sometime.  The employee handbook itself never mentioned arbitration.  The dispute resolution policy did indeed include an arbitration agreement.  The policy stated that agreement to the dispute resolution clause was a condition of employment.  But, found the Sixth Circuit, the employee nowhere acknowledged that she had been notified of the contents of the dispute resolution clause.  The employer could not show that the employee was aware of the policy or that she had agreed to it in any way. 

And, of course, like many employee handbooks, it contained language stating that the handbook was not contractual.  As Workplace Prof points out, many employers want the contractual benefits of a binding arbitration agreement.  The handbook appeals to employees because it provides a predictable, understandable framework for their employment relationship.  But, a binding employee handbook would present many problems for an employer.  So, they seek to avoid any contractual aspects.  See Workplace Prof blog.  It is hard to have your cake and eat it too....

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Employee handbooks are not binding on a Texas employer.  The typical employee handbook says the employer will not fire someone until that person has been verbally warned, and then warned in writing a few times.  Or, the handbook may say that an employee will not be demoted or fired without a good reason.  Once upon a time, such handbooks were found to be binding upon the employer.  Employers soon learned, however, that they could avoid the binding nature entirely if they simply state in the handbook that it is not binding and that the policies can be changed anytime. 

So, yes, these days, almost every employer, probably 99.9% now state somewhere in their handbook that it is not binding.  So, yes, an eleven year employee can now be fired with no warning simply because a new manager wants to downsize the office. 

I have previously talked about employee handbooks here and here. 

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In most private sector jobs, if you were suspended 17 times by your employer, you would be out of a job.  But, Officer Lee Rakun is still appealing his latest suspension from the San Antonio Police Department.  See San Antonio Express-News story.  In fact, Officer Rakun received his first suspension within a year of starting with the police force.  The SAPD has an active union and a strong Collective Bargaining Agreement (CBA).  So, that helps explain Officer Rakun's tenacity.

The advantage of CBA's is that they typically require some form of "good cause" for termination.  An employee can only be fired for good cause.  Without a CBA, the rest of us are subject to Texas' "at will" employment.  "At will" employment means the employer can terminate anyone for any reason (other than discrimination and a few other exceptions).  The employee handbook so many of us have at our jobs say an employee will be fired for certain infractions.  But, employee handbooks are not binding and they are often violated by the employer. 

So, the next time you are fired for "excessive absences" or because after 14 years of no errors, you are accused of failing to account for one $15 expense, think about unions and Officer Rakun's appeal of his 17th suspension.  

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 Employee handbooks are not enforceable.  They have not been enforceable since the early 1990's.  In the early 1990's, after a few court decisions, Texas employers realized they had to include a disclaimer in each handbook stating that the handbook is not a contract.  Employers wanted employe handbooks to not bind the employers.  Much of what makes a good handbook does not make for a good contract from the employer's perspective.  There were one or two cases in the late 1980's in which employees successfully argued that they had not been warned three times prior to termination, as required in the employee handbook.  So, their terminations were overturned.  Employers responded with clauses making the handbook not binding and not contractual. 

Then comes this movement to send disagreements to arbitration.  Employers thought arbitration would be cheaper and faster than lawsuits.  So, they sought to make arbitration the default forum for disagreements in the workplace.  But, how do you have a binding arbitration in an employee handbook that has a disclaimer?  That is, how does one make a non-binding handbook binding, sort of, sometimes, maybe?

Easy.  Include a phrase that sets the arbitration clause apart from the rest of the handbook, so that only the arbitration clause is binding.  This is what has lead to the Hatton v. D.R. Horton case.  See report.  The Texas Supreme Court has asked the parties to provide briefing on the issue, which usually means the court will consider the issue.  The Texas Supreme Court has been very supportive of large corporations and employers for many years.  And, the movement to take disagreements to arbitration, for everything from buying a car to workplace complaints is still strong.   So, the chances of success for the employee in Hatton v. D.R. Horton are slim indeed. 

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 Many employers need to develop and fine tune their social media policies.  See several sets of policies and guidelines at this website from Delaware Employment Law.  Connecticut Employment Lawyer presents some helpful guidelines at this post.  

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 Mike Maslanka, generally a defense lawyer, offers a good point about employee handbooks.  All large employers have them.  They provide concise, easy-to-read rules.  But, employee handbooks generally do not provide a purpose for the rule.  They do not explain why a particular rule is necessary, or even better, why the rule provides a benefit to the employee.  For example, every handbook explains that the employee is at-will and and can quit anytime.  That means, the employer can terminate the employee at any time.  Mike suggests employers explain how that benefits both parties.  One could, for example, insert a sentence explaining that this flexibility allows either party to seize available opportunities.  A handbook could also explain the rules regarding hostile work environment ensure that the best employees are allowed to be productive. 

In the US Army, we called this process "task plus purpose."  Every mission should provide the purpose of a particular mission to a soldier.  If you explain  the purpose of a particular task or mission, you provide that soldier the flexibility to react to changing circumstances.  For example, do not just tell a captain his men must seize a particular objective.  Tell him his troops must secure an objective in support of another attack.  That way, if the objective is secured before the captain gets there, he will know that he should react by supporting the attack in some other way.  This sort of flexibility allows nimble reaction to a fluid situation.  He will not have to wait until he can call the general on the radio to obtain new guidance. 

But, this flexibility also incorporates the Captain into the overall strategy.  He is not just a cog, but an integral part of the plan.  If you bring the Captain and his troops into the overall battle plane, they will treat it as their own plan.  Any employee needs to feel part of the overall strategy.  They need to buy into the overall plan, not just their small part of it.  

But, the disconnect in this scenario is that some employers do not want the employees to feel they have a voice in company strategy.  Some employers believe that in giving employees a voice in how to sell product or how best to fabricate machinery, they may seek a voice in other areas, as well.  If so, that view is short-sighted.  

Americans are generally independent.  We will follow orders or direction but we want to know why. Our military forces for 200 years have always needed some degree of explanation before following direction.  The new generation, the so-called "millenial" generation, seeks this understanding even more so.  An employer who ignores these facets of our national character does so to their detriment.  

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 Those employee handbooks are so pretty and well-written.  When your boss said they were binding, you probably believed her.  But, no, these handbooks are usually nothing more than a guideline.  They are not at all binding, if the employer did its homework.  See Russell Cawyer's post explaining how to be sure they are not binding.  I have talked before about how these handbooks are almost always not binding.  

But, of course, the trick the past few years has been how to make sure the overall handbook is not binding but make sure the arbitration clause *is* binding.  Employers do love those arbitration clauses. 

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 I talked about how employee handbooks are not a contract.  That means an employer does not necessarily have to counsel an employee three times in writing before terminating that employee.  But, a question that often comes up is why would an employer want to counsel an employee in writing?  The most common reason is unemployment benefits.  In most states and certainly in Texas, a worker only gets unemployment benefits if s/he can show s/he lost the job due to his/her own fault.  Employers will try to claim the employee was a bad employee.  The best way way for the employer to win that argument is to show write-ups documenting alleged performance issues.  

And, if an employee accuses the employer of discrimination, written counseling regarding objective, non-discriminatory issues provides an effective defense.  In fact, in almost all of my discrimination cases, the employer will dredge up supposed write-ups in some way.  I used to firmly believe that employers could not accuse an employee of malfeasance without contemporary write-ups.  I formerly was sure no jury would believe an employer was upset about an alleged offense unless the employer could produce contemporary write-ups.  

So, imagine my surprise when a case I worked very hard on went to trial while I was serving in Iraq.  My co-counsel lawyer told me later we lost the trial probably because the jury believed the employer's claim they were upset with our plaintiff employees even though they had no write-ups at all to back it up.  Our clients were accused essentially of not working well with others (when just the opposite was the truth).  Yet, they apparently won on that one issue.  I am still in recovery from that shock.....

But, it still remains a valid rule-of-thumb: if you want to show a non-discriminatory reason for a termination (or some other adverse personnel action), you better have some write-ups.  

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All the big employers have them: employee handbooks.  They love their handbooks.  They spend so much time and money putting them together that they would have to love them.  So, of course, many employees come see me and first thing they say is the Employer did not follow their own policy.  The employee says it like that simple fact should answer all my questions.  But, that fact answers few of my questions.  

The fact is most of those employee handbooks are not even close to binding on the employer.  This most often comes up when an employee is fired and they complain that they were not written up three times before they were fired.   Sure, many employer policies state that an employee must be written up three times before being fired.  *But* an employer's policy is usually not binding on the employer.  I guess too many employees have sat through too many HR meetings when HR discusses their wonderful and well-thought out employee handbook and how managers are expected to follow these policies.  

And, that makes sense.  Most policies are designed to give someone a chance to improve.  Often, if given the opportunity to improve, most employees do.  

But, unfortunately, almost all employee handbooks now come with a proviso that these policies are not binding and do not form a contract.  Due to some court decisions in the late 1980's and early 1990's, employers started putting a clause in the handbook that states the handbook is not a contract.  So, of course, seeing that clause, the judges found handbooks to not constitute a contract. So, the the employer was not bound by its own handbook, ...  that the employer used to love so much.  

So, sure, now it is okay to fire an employee with only one written discipline.  So, now, it is okay to not try to salvage an otherwise productive employee.   But, so long as everyone knows this, there should be no surprises.....

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 Many times over the years, I have been asked or told that what the employer did was not fair.  The employee will tell me how they were fired with just one warning.  The employee explains that the employee handbook clearly says the employer must have three written warnings "before they can fire you."  

"Well," I reply in my calmest voice, "those employee handbooks are usually not binding."  If they contain provisions that this handbook is not binding or is not a contract, then the handbook is not binding.  That means the handbook's requirement of three written warnings is not binding.  I then go through the various other possibilities regarding how three written warnings might be binding.  As usual, none of those other possibilities apply to the average employee.  So, yes, I must tell the employee, those requirements for three written warnings mean nothing.  They are not binding.  "Yes," I add, "an employer can fire you with one written warning, or even with no  written warning."  

This is known as "at-will" employment."  At-will employment is the general rule in Texas and most other states.  An employer can fire a person for a bad reason or for no reason.  There are only a few very limited exceptions to at-will employment in Texas.  At this point, I always add, that at-will employment may not be fair, but it is the law in Texas.  

At some point, I explain that the other side of the coin is that an employee can quit whenever s/he wishes.  But, somehow, I do not think that is what they wanted to hear......

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