Opinion
Civil Action No. 3:04-CV-1188-M.
November 4, 2004
MEMORANDUM OPINION AND ORDER
Before the Court is a Motion to Compel Arbitration, filed by Defendant Asia Source, Inc. ("ASI") on August 3, 2004. For the following reasons, the Court is of the opinion that Defendant's Motion should be DENIED.
Background
Plaintiff is a 61 year-old Asian American. Plaintiff was employed by ASI as an account executive between 1994 and 2003. Plaintiff alleges that he was terminated on March 28, 2003 without warning. Plaintiff claims that his job performance had always been satisfactory, and that his termination was due to his age and national origin.
Plaintiff filed a discrimination charge with the Equal Employment Opportunity Commission on July 17, 2003. The charge was dismissed, and Plaintiff was given the right to initiate a private action against ASI. Plaintiff did so, asserting violations of the Age Discrimination in Employment Act, 29 U.S.C. 623 (2004), and Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-2 (2004).
Defendant now moves to compel arbitration of Plaintiff's claims, based on an arbitration agreement contained within the ASI Employee Manual ("Manual"). Plaintiff acknowledges that he received the Manual in January of 2000, but he argues that the arbitration provision contained therein is unenforceable.
Analysis
In evaluating a motion to compel arbitration, the Court must first determine whether the parties entered into a valid arbitration agreement. See Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069 (5th Cir. 2002). The court is to interpret arbitration agreements based on "ordinary state law principles that govern the formation of contracts". Id., at 1073, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). If the Court finds that a valid arbitration agreement exists, it must next consider whether any external legal constraints preclude arbitration of the dispute in question. See id., at 1073.
Plaintiff argues that the arbitration agreement between him and ASI is unenforceable for lack of consideration. Plaintiff was an at-will employee of ASI. Under Texas law, an employer may ordinarily modify the terms of an at-will employment agreement at any time, so long as the employer notifies the employee, and the employee continues working after receiving such notice. Hathaway v. General Mills, Inc., 711 S.W.2d 227, 229 (Tex. 1986). The employee's promise to continue working and the employer's promise to continue paying his salary constitute sufficient consideration to support modification of the employment contract. See id.
However, a recent decision of the Texas Supreme Court indicates that the promises underlying an at-will employment contract are insufficient consideration to support an employer's imposition of an arbitration agreement on an employee, when the arbitration agreement gives the employer the unilateral, unrestricted right to refuse arbitration. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003). The contract language at issue in J.M. Davidson stated that "the Company reserves the right to unilaterally abolish or modify any personnel policy without prior notice." Id., at 229. The Texas Supreme Court reasoned that if this language permitted the employer to nullify the arbitration agreement, its employees would have received nothing of value in exchange for their unconditional promises to arbitrate disputes. Id. The Court remanded the case, and directed the trial court to determine whether the "personnel policy" language was intended to cover the arbitration agreement so that it could be amended unilaterally. Id. at 232. If the trial court found it was a "personnel policy", the Texas Supreme Court stated that the arbitration agreement would be unenforceable, due to the absence of mutual consideration. See id. Most jurisdictions to have considered the issue have reached the same conclusion. See id. at 231; Dumais v. American Golf Co., 299 F.3d 1216 (10th Cir. 2002) (noting similar holdings among the Sixth, Fourth and Seventh Circuits).
The Manual in this case includes language more clear than the language at issue in J.M. Davidson. The Manual provides that, "ASI Corp., at its option, may change, delete, suspend or discontinue any part or parts of the policies in this Employee Manual at any time without prior notice . . .". Since the arbitration agreement is part of the Manual, this clause permits ASI unilaterally to cancel its agreement to arbitrate. Plaintiff does not have the same right. Since the purported consideration for the arbitration agreement was based on only the at-will employment contract, this provision is unenforceable under Texas law. See J.M. Davidson, 128 S.W.3d at 223; See also In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002) (arbitration agreement was valid, because employer was required to give its employees advance notice before modifying the agreement, and modifications applied prospectively only).
In light of the Court's determination that the arbitration agreement is unenforceable under Texas law, the Court does not reach Plaintiff's other arguments for not enforcing the arbitration clause.
Conclusion
Under Texas law, the arbitration agreement between Plaintiff and Defendant is based on illusory consideration. Accordingly, Plaintiff is not bound by the arbitration agreement. Defendant's Motion to Compel Arbitration is therefore DENIED.