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Are Texas Arbitration Agreements Between Employers and Their Employees Always Enforceable?

Over the past decade, it has become common to see arbitration agreements in a variety of business agreements. Indeed, arbitration is the preferred method for many businesses to resolve all kinds of Texas business disputes, whether a dispute is between a company and its customers, employees, suppliers or another business.

Recently, forced arbitration clauses have come under fire, with appellate courts across the country hearing a wide range of cases involving the circumstances in which arbitration agreements are valid. Last year, the U.S. Supreme Court issued an opinion strengthening a business’ ability to compel arbitration based on a validly executed arbitration agreement.

The case consisted of three separate cases that were consolidated before the Court. In each case, employees signed agreements before or during their employment, agreeing that they would resolve any claims that arose during their employment individually and through arbitration, rather than through the court system.

Each of the three cases was based on a dispute that is not relevant to the issue at hand. What is important is that an employee filed a claim against his employer in federal court. The case was filed as a “class action lawsuit,” meaning that a single employee filed the claim, but did so on behalf of other similarly situated employees. The employers sought dismissal of the plaintiff’s claims against them, asking the court to enforce the agreement in which the employees agreed to resolve their grievances through arbitration.

The employees argued that the clause in the agreement requiring they resolve their claim individually violated their rights under the National Labor Relations Act (NLRA). Specifically, the right to take “concerted action” with fellow employees against an employer. The lower court agreed with the employees. On appeal to the Ninth Circuit, the court added that, because the agreement violated the NLRA, the entire contract was invalid, including the arbitration portion of the agreement. The employers appealed the case to the United States Supreme Court.

In its opinion, the Court noted that the terms of the agreement were clear in that the contract called for employees’ claims to be resolved individually and through arbitration. The Court acknowledged that the National Labor Review Board (the federal agency that is responsible for enforcing the NLRA) believed that compelling individualized dispute resolution was a violation of the NLRA. However, the Court added that this was a recent change in the National Labor Review Board’s policy.

The U.S. Supreme Court ultimately reversed the lower courts’ decisions, notwithstanding the National Labor Review Board’s agreement with the employees. The Court explained that the Federal Arbitration Act (FAA) instructs federal courts “to enforce arbitration agreements according to their terms” and that the NLRA “does not mention class or collective action procedures.” Thus, the Court determined that the NLRA does not “displace” the FAA.

The Court reasoned that, when presented with two acts of Congress that could possibly be read to conflict with one another, if possible, the Court must read both in a manner such that there is no conflict. Thus, the Court based its decision on the fact that the FAA explicitly condones individualized dispute resolution and the NLRA does not confer a right to pursue a class action lawsuit.

Are you involved in a Texas business dispute?

When success matters, every decision you make is important. Choosing which Texas business law firm will handle your case is no exception. At the Law Offices of Gregory D. Jordan, we have over 25 years of experience assisting businesses in dealing with the full range of issues they confront, including breach of contract, employment law and franchise litigation. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

The Duties of the Holder of the Executive Right to Minerals

In the case of Texas Outfitters, LLC vs. Nicholson, the Texas Supreme Court examined the holder of the executive right’s duty of utmost good faith and fair dealing to non-participating mineral interest owners. In Texas Outfitters, the holder of the executive right to lease minerals refused to sign a lease which the owner of a non-participating mineral interest alleged it should have signed.

A company called Texas Outfitters, LLC purchased over a thousand acres, including 1/24th of the mineral rights, as well as the exclusive right to lease 11/24th of the mineral rights retained by the sellers of the property. At the time, the land was not leased and had no oil and gas production. Approximately a decade after the sale of the land, the owners of the remaining 50 percent of the minerals leased to El Paso Oil Exploration and Production Company. El Paso made the same offer to Texas Outfitters; however, Texas Outfitters refused to lease even though the sellers made it clear to Texas Outfitters that they wanted Texas Outfitters to lease. Ultimately, the sellers filed suit against Texas Outfitters for breaching its duty of good faith and fair dealing as the executive holder of the right to lease the mineral rights. The sellers sought damages in the amount that they lost due to Texas Outfitters refusing to lease the mineral rights.

At a bench trial, the trial court found in favor of the sellers, holding that Texas Outfitters did not act in good faith and breached its duty as the holder of the executive right. The case was eventually appealed to the Texas Supreme Court. The Court looked at the history of the executive right and ultimately held that, in this case, Texas Outfitters breached its duty of good faith and fair dealing where it engaged in acts of self-dealing to the benefit of its interest in the surface estate and to the detriment of the owners of the mineral estate. The Court stated that Texas Outfitters, in refusing to lease the mineral rights, did so “in acts of self-dealing that unfairly diminished the value of the non-executive interest.” This action “crossed the line” bringing Texas Outfitters, LLC into the realm of breaching its duty to the non-executive rights holder.

Attorney Gregory D. Jordan is an oil and gas attorney with offices in the Austin area. To learn more, visit http://www.theaustintriallawyer.com/

Law Offices of Gregory D. Jordan
5608 Parkcrest Drive, Suite 310
Austin, Texas 78731
Call: 512-419-0684

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