Don’t Ignore Pre-Litigation Demands That Mention Arbitration

Letter clip art free clipart imagesMost of you have probably received pre-litigation letters from attorneys claiming to represent a former employee who believes that you have done them wrong. The letters traditionally demand that you pay up or get sued. Quite often these letters end up in the circular, metal container near your desk. Sometimes the former employees actually sue, most of the time they go away. Unfortunately, some enterprising plaintiff’s attorneys in Texas are using the tendency of most employers to ignore these letters as a way to void otherwise enforceable arbitration agreements.

This is how the scheme played out in a Texas state court earlier this year: The plaintiff’s attorney sent a pre-litigation letter to the employer asking whether the employer had an arbitration agreement with the former employee. The letter also demanded that the employer produce any such agreement within thirty days, and stated that failure to do so would constitute an agreement not to arbitrate the claims. The employer never responded, and the former employee filed his lawsuit instead of initiating arbitration.

The employer did not demand arbitration and proceeded with the litigation. In discovery the employer produced a signed arbitration agreement. The plaintiff decided that he would rather be in arbitration than the Texas court and moved the court to submit the case to arbitration based on the newly discovered arbitration agreement. The trial court and the Texas Court of Appeals held that the Plaintiff could not move the case to arbitration. This is where the case really gets odd: the Court of Appeals held that the letter from the plaintiff’s attorney, combined with the employer’s failure to produce the arbitration agreement within thirty days as demanded in the letter, constituted a subsequent, enforceable agreement between Plaintiff and the employer to rescind the arbitration agreement. Think about this, ignoring the letter, to which the employer had no legal obligation to respond, constituted a binding agreement to rescind the arbitration agreement.

As wrong as it sounds, this ruling, if it is not overturned on appeal, is the law of the land in the Fourth Court of Appeals of Texas. Although most of you probably do not do business in the Fourth Court of Appeals of Texas (in and around San Antonio), you can rest assured that plaintiff’s counsel around the country will hear of this decision and copy these tactics in the hopes that other courts will follow suit and rescind otherwise binding arbitration agreements.

The take away for employers is that if you have an arbitration provision in place and you want the ability to enforce it, it would probably be a good idea to respond to a pre-litigation demand letter by at least stating that you do have an arbitration agreement in place and that you intend to enforce it.

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