Employment arbitration agreements are common: they’re a way for employers to save time and money on disputes, and keep proceedings out of the public record. However, the federal government and some states are considering whether to curb employment arbitration in certain situations. If you plan to use a Texas employment arbitration agreement, it’s important to be aware of current state and federal laws.

Here’s an overview of the law, and how SixFifty can help ensure that your Texas employment arbitration agreements are compliant and enforceable.

Arbitration agreements in Texas employment

Arbitration agreements are frequently used in employment contracts. When enforceable, the parties agree to resolve any disputes that arise through arbitration instead of filing a lawsuit in court. This is an alternative dispute resolution technique which employs a neutral third-party arbitrator. The arbitrator hears the case and decides on the final resolution, which typically cannot be appealed.

Arbitration is usually faster than litigation, which involves more stringent procedural and evidentiary rules and can take years to resolve. It’s also more private, whereas lawsuits are in the public record. While rulings usually can’t be appealed, employees retain the right to file harassment or discrimination claims with government agencies like the Equal Employment Opportunity Commission.

Are employment arbitration agreements enforceable in Texas?

Employment arbitration agreements are enforceable in Texas—even mandatory ones (those where employment is conditional upon signing the agreement). However, employers in all states should note that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, was signed into law in March 2022. The law restricts employers from requiring arbitration in workplace sexual assault or sexual harassment claims.

Furthermore, there are certain state limitations. For instance, Texas law holds that employers and employees can enter into arbitration agreements unless the terms of the agreement are so unfair as to be “unconscionable.” Unconscionability is a facet of contract law. If a contract is challenged on procedural grounds, courts will consider how the contract was formed and signed. For example, if the employee was tricked into signing the arbitration agreement or the agreement was otherwise formed through fraud, it would not be enforceable.

Also, employers should not rely only on an arbitration policy in a handbook. Handbook policies are often not considered binding contracts. To increase the chance that a court will enforce an arbitration agreement, employers should enter written, binding arbitration agreements with employees, as opposed to just having an arbitration policy in the handbook.

If that sounds confusing, it’s because it is. Employers must carefully research current law and craft arbitration agreements to be compliant.

Who pays for employment arbitration in Texas?

Under the Model Employment Arbitration Procedures of the American Arbitration Association, employers should pay. Since AAA model rules are not law, however, Texas employment arbitration agreements can include cost-sharing provisions. While employers frequently bear the monetary burden, they’re not required to do so under Texas law.

Texas law tends to favor employers in employment arbitration agreements, including by permitting cost-sharing provisions—but there are certain exceptions.Employees may try to challenge the arbitration agreement as procedurally or substantively unconscionable if the cost-sharing terms are unfair. An employer paying for the costs of arbitration can help defeat an argument that the arbitration agreement is unconscionable.

When considering substantive unconscionability, the court evaluates the actual substance of the contract. For example, who pays for arbitration? Will the outcome be kept secret? Was discovery available to both parties, and to what extent? Is only one party bound to arbitrate?

Of course, the court is entitled to look at other factors in both procedural and substantive evaluations.

How do you create a Texas employment arbitration agreement?

While some state and federal laws try to protect employee rights, Texas is more laissez-faire. It’s crucial that employers understand their obligations and rights under both Texas state law and federal law—particularly when federal law might overrule claims, such as the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. Arbitration has been an increasingly popular topic for lawmakers over the last few years, and as the laws change, research can be more difficult.

While larger companies can afford to hire attorneys or have their in-house legal team draft an agreement from scratch, that can be prohibitively time-consuming and expensive for smaller businesses. On the other hand, relying on a copied-and-pasted arbitration clause from a template could jeopardize the agreement’s enforceability.

SixFifty offers the perfect middle ground. Our Employment Agreements tools let employers create compliant agreements in a few clicks. All you have to do is answer questions about your company and download the automatically generated agreement. Best of all, we stay on top of changes to the law and notify you when your documents are affected.

It’s never been easier to create your own Texas employment arbitration agreement. Schedule a free product demo today!