In an opinion by Justice Patricia Alvarez, the Fourth Court of Appeals has affirmed a trial court’s confirmation of an arbitration award in favor of an employer in a sexual misconduct action filed by an employee. In Guerra v. Garza (No. 04-20-00315-CV), an employee of El Tigre Food Stores sued her employer and another employee whom she alleged touched her inappropriately while she was working on a computer. The claimant had signed an employment agreement with El Tigre containing a mandatory arbitration clause covering “all disputes” that may arise between the employee and employer. The trial court ruled that the arbitration provision applied to the employee’s claim and ordered arbitration. The arbitrator found in favor of employer. When the arbitrator’s take nothing award returned to the trial court, the claimant objected on the basis that her employment agreement, which mandated arbitration of a sexual misconduct claim, violated public policy. The trial court disagreed and confirmed the arbitration award. The employee appealed.
After resolving a jurisdictional question involving whether the case was properly before the court, Justice Alvarez turned to the employee’s challenge to the enforceability of the arbitration of the arbitration agreement. El Tigre argued that the question of enforceability must be decided by the arbitrator, not the court. It further argued that because the employee failed to raise the enforceability issue with the arbitrator, she waived any complaint on appeal. Finally, El Tigre contended that the arbitration agreement itself did not violate public policy. Applying a de novo standard of review, Justice Alvarez’s analysis proceeded in accordance with SCOTX precedent in RSL Funding, LLC v. Newsome, 569 S.W.3d 116 (Tex. 2018) and In re Morgan Stanley & Co., 293 S.W.3d 182 (Tex. 2009). In RSL Funding, SCOTX held that arbitration clauses are separable from the contracts in which they are a part. In re Morgan Stanley says that once an arbitration clause is separated from the contract, it may be attacked in three ways: (1) by challenging the validity of the contract as a whole; (2) by challenging the validity of the arbitration provision itself; or (3) by challenging whether an agreement exists at all. Here, as Justice Alvarez notes, the employee’s brief challenged the contract as a whole.
SCOTUS precedent construing the Federal Arbitration Act (FAA), which governed the contract at issue in this case, has held that the arbitrator must determine the validity of both the whole contract and the arbitration provision standing alone. SCOTX adopted this reasoning in RSL Funding. Justice Alvarez thus found that the employee’s public policy defense to her employment contract must be determined by the arbitrator, not the court, and that the doctrine of separability bars the court of appeals from deciding the issue. Consequently, the court of appeals did not reach the specific issue of whether agreements mandating arbitration of sexual misconduct claims violate public policy.
In view of the consistency with which Texas appellate courts enforce arbitration agreements, one might wonder why the courts of appeals continue to hear about it—even when the trial court correctly determines that issues of enforceability lie in the domain of the arbitrator. This case looks like a Hail Mary play, but it does indicate an ongoing tension between public and private justice. This tension is not going away, despite the ubiquity of arbitration provisions in employment, consumer, and other types of contracts. Perhaps there is a case out there that will break through arbitration barrier, but it will have such egregious facts that it will unlike have much value as precedent. Unless and until Congress changes the FAA, we should expect the same decisions from our courts of appeals as the San Antonio Court handed down here.