Recent Developments from Around the States

Poly-America makes products such as trash bags and shrink wrap. Johnny Luna, at at-will employee of Poly-America, began working for the company was hired in October 1998. At the time of his hiring, Luna signed an arbitration agreement. Following a workplace injury, Luna filed a workers' compensation claim in December 2002. Not long thereafter, in February 2003, Luna's employment was terminated. He filed suit against his former employer, claiming that he had been fired in retaliation for making a workers' compensation claim. Poly-America moved to compel arbitration of Luna's claim and to stay the litigation pursuant to the arbitration agreement, and the lower court granted the company's motion. Luna appealed.

On review, the Texas Court of Appeals reversed, finding two provisions of the arbitration agreement substantively unconscionable. First, the court noted, the cost provision of the agreement required that the company and Luna split arbitration costs; however, the agreement also capped the employee's share of the costs at “the gross compensation earned by the Employee in Employee's highest earning month in the twelve months prior to the time the arbitrator issues his award.” Luna estimated, and the company did not challenge, that the cap would be around $4450 and argued that those costs were prohibitive. This cost, the court concluded, would “place an oppressive burden on Luna” and found that the cost provision militated strongly in favor of finding that the arbitration agreement was so one-sided as to be unconscionable.

Second, the court examined, and found unconscionable, provisions of the agreement prohibiting reinstatement and punitive damages. Both, the court pointed out, were available under the Texas's workers' compensation law. “Although preclusion of statutory remedies may not always weigh toward a finding that the provisions as a whole are substantively unconscionable, their preclusion does so with regard to the statutory remedies at issue in this case because Luna's claim is one brought for alleged retaliation for filing a worker's compensation claim as part of the overall Worker's Compensation Act,” the court wrote.

TEXAS

Arbitration Agreement Unconscionable

A Texas appeals court has held that an reprocessing plant operator will not be compelled to arbitrate his claim of workers' compensation retaliation against his former employer where key provisions in an arbitration agreement between the ex-employee and former employer lean towards substantive unconscionability. In re Luna, 2004 Tex. App. LEXIS 8241 (Tex. Ct App. Sep. 9).

Poly-America makes products such as trash bags and shrink wrap. Johnny Luna, at at-will employee of Poly-America, began working for the company was hired in October 1998. At the time of his hiring, Luna signed an arbitration agreement. Following a workplace injury, Luna filed a workers' compensation claim in December 2002. Not long thereafter, in February 2003, Luna's employment was terminated. He filed suit against his former employer, claiming that he had been fired in retaliation for making a workers' compensation claim. Poly-America moved to compel arbitration of Luna's claim and to stay the litigation pursuant to the arbitration agreement, and the lower court granted the company's motion. Luna appealed.

On review, the Texas Court of Appeals reversed, finding two provisions of the arbitration agreement substantively unconscionable. First, the court noted, the cost provision of the agreement required that the company and Luna split arbitration costs; however, the agreement also capped the employee's share of the costs at “the gross compensation earned by the Employee in Employee's highest earning month in the twelve months prior to the time the arbitrator issues his award.” Luna estimated, and the company did not challenge, that the cap would be around $4450 and argued that those costs were prohibitive. This cost, the court concluded, would “place an oppressive burden on Luna” and found that the cost provision militated strongly in favor of finding that the arbitration agreement was so one-sided as to be unconscionable.

Second, the court examined, and found unconscionable, provisions of the agreement prohibiting reinstatement and punitive damages. Both, the court pointed out, were available under the Texas's workers' compensation law. “Although preclusion of statutory remedies may not always weigh toward a finding that the provisions as a whole are substantively unconscionable, their preclusion does so with regard to the statutory remedies at issue in this case because Luna's claim is one brought for alleged retaliation for filing a worker's compensation claim as part of the overall Worker's Compensation Act,” the court wrote.