Court refuses to send overtime claim to arbitration

Companies often require their workers to sign arbitration provisions in an effort to protect themselves from overtime claims. This is often misguided, as arbitration is ultimately more expensive for the employer than state or federal courts, but this does not stop companies from using this tactic. Employers sometimes make mistakes in drafting their arbitration policies, as a recent overtime case in federal court in Houston illustrates. In Ryhan v. DW Direct, Inc., a former employee sued DW, a satellite-television installation company. The company argued that the worker agreed to arbitrate his claims, and moved to compel the case to arbitration. The worker argued that the arbitration provision was illusory.  

The following documents and circumstances are relevant:

Employee Handbook Introduction

Each DW Direct employee, upon commencing employment with the company, was provided with an Employee Handbook. The Introduction to the Employee Handbook, as relevant here, provides:

  • DW Direct reserves the right to revise, supplement, or rescind any policies or portion of the handbook, as it deems appropriate, in its sole and absolute discretion. The only exception to any changes is our employment-at-will policy permitting you or DW Direct to end our relationship for any reason at any time. Employees will, of course, be notified of changes to the handbook as they occur.
  • DW Direct expressly retains the right to unilaterally modify or amend this handbook, at DW Direct’s sole discretion, with or without notice to DW Direct’s employees.
  • Policies set forth in this handbook are not intended to create a contract, nor are they to be construed to constitute contractual obligations of any kind or a contract of employment, express or implied, between DW Direct and any of its employees. The provisions of the handbook have been developed at the discretion of management and, except for its policy of employment-at-will, may be amended or canceled at any time, by DW Direct in its sole discretion.

The Introduction thus reserves to DW Direct, at three different points, a right to unilaterally modify the terms of the Employee Handbook. Policy 801, which contains the arbitration provision, provides, in contrast to the Introduction of the Employee Handbook, that the arbitration policy “can only be revoked or modified by writing signed by the parties that specifically states intent to revoke or modify this Agreement.” Therefore, Policy 801 appears to require the consent of both parties to modify the arbitration agreement.

Thus, the company’s policies were contradictory as to whether they could be changed unilaterally by the company or only with consent of both parties.  The Court began its analysis by noting that under Texas law, “an arbitration clause is illusory if one party can avoid its promise to arbitrate by amending the provision or terminating it altogether.” The Court then stated that “where an ambiguity exists in a contract, the contract language will be construed strictly against the party who drafted it since the drafter is responsible for the language used.” Thus, the Court construed the ambiguity in when the employment policies could be changed against DW Direct, holding that “because the contract appears to reserve a right to unilaterally modify the arbitration agreement to DW Direct, it is illusory and unenforceable.”  As such, the Court denied the motion to compel the case to arbitration.  

This case illustrates that just because a company claims that it has a valid arbitration policy does not mean that it does.  Errors in draftsmanship mean that the company may be out of luck when enforcing its employment policies.  

About the author: Josh Borsellino is an experienced employment attorney who represents workers in claims for unpaid overtime.  If you have questions about overtime pay, call Josh today at 817.908.9861 or email him by clicking this link for a free consultation.  

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