In re Poly-America, LP, No. 04-1049 (Tex. Aug. 29, 2008)(O'Neill)
(arbitration in employment context, retaliatory discharge)
We hold invalid, as substantively unconscionable and void, provisions of the parties’
contract that prohibit the award of punitive damages or reinstatement and thus inhibit
effective vindication of Luna’s retaliatory-discharge claim in an arbitral forum. We
further hold that the trial court did not abuse its discretion in allowing the arbitrator to
determine whether the fee-splitting agreement and discovery limitations — as applied in
the course of arbitration — are unconscionable. Because we find the invalid remedies-
limitation provisions severable from the agreement to arbitrate, which we conclude is
otherwise enforceable, the trial court did not abuse its discretion in compelling
arbitration. Accordingly, we conditionally grant the writ of mandamus.
IN RE POLY-AMERICA, L.P., IND. AND D/B/A POL-TEX INTERNATIONAL, AND POLY-AMERICA GP, L.L.C.;
from Chambers County; 1st district
(01-03-01055-CV, 175 SW3d 315, 09-09-04)
The Court conditionally grants the petition for writ of mandamus.
Justice O'Neill delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Hecht, Justice
Wainwright, Justice Medina, Justice Green, and Justice Johnson joined.
Justice Brister delivered a dissenting opinion.
(Justice Willett not sitting)
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In re Poly-America (Tex. 2008)
═════════════════════════════════════════════════════════════════════
Argued January 25, 2006
Justice O’Neill delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Hecht, Justice
Wainwright, Justice Medina, Justice Green, and Justice Johnson joined.
Justice Brister filed a dissenting opinion.
Justice Willett did not participate in the decision.
In this retaliatory-discharge case, the employee’s employment contract contains an arbitration agreement that
requires the employee to split arbitration costs up to a capped amount, limits discovery, eliminates punitive
damages and reinstatement remedies available under the Workers’ Compensation Act, and imposes other
conditions on the arbitration process. We must decide whether any or all of these provisions are
unconscionable and, if they are, whether the contract’s severability clause preserves the arbitration right. We
hold that the trial court did not abuse its discretion in allowing the arbitrator to assess the unconscionability of
the agreement’s fee-splitting and discovery-limitation provisions as applied in the course of arbitration. We
further hold that the arbitration agreement’s provisions precluding remedies under the Workers’ Compensation
Act are substantively unconscionable and void under Texas law. However, those provisions are not integral to
the parties’ overall intended purpose to arbitrate their disputes and, pursuant to the agreement’s severability
clause, are severable from the remainder of the arbitration agreement, which we conclude is otherwise
enforceable. Accordingly, we conditionally grant the petition for mandamus.
I. Facts
Johnny Luna began his employment with Pol-Tex International, d/b/a Poly-America, L.P., in October 1998.
Upon his hiring, Luna signed an agreement to submit “all claims or disputes” to arbitration. Approximately four
years later, Luna signed an amended agreement to arbitrate that contained substantially the same provisions.
Both the 1998 and 2002 agreements provide that they are governed by the Federal Arbitration Act (FAA). 9 U.
S.C. §§ 1–14. Additionally, both agreements contain a series of requirements for the arbitration between the
parties. All claims must be asserted within a maximum of one year from the occurrence of the event from which
the claim arises. Fees associated with arbitration — including but not limited to mediation fees, the arbitrators’
fees, court reporter fees, and fees to secure a place for a hearing — are to be split between the parties, with
the employee’s share capped 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.” Each side is permitted
limited forms of discovery: twenty-five interrogatories (including sub-parts), twenty-five requests for production
or inspection of documents or tangible things, and one oral deposition of no more than six hours. Parties may
not use written depositions or requests for admission; the agreement prohibits discovery of either party’s
financial information except for the employee’s earnings if the employee seeks lost wages, back pay, and/or
front pay; and all aspects of the arbitration are deemed confidential. Finally, the arbitrator is stripped of
authority to award punitive, exemplary, or liquidated damages, or to order reinstatement of employment.
In December 2002, Luna suffered a work-related neck injury when he accidentally hit his head on a pipe. Poly-
America’s company doctor examined Luna and diagnosed him with an acute cervical spine flexion injury. Luna
subsequently filed a workers’ compensation claim and began receiving physical therapy. Approximately two
weeks later, Luna returned to work on a release for light duty; however, Luna continued to suffer pain and
utilized previously scheduled vacation time to recover from his injury. After being warned by the company
doctor that he needed to return to work and get off of workers’ compensation if he wanted to keep his job,
Luna returned to work without restrictions on January 10, 2003. Upon his return, Luna noticed that another
person was already being trained for his position, and he claims that his supervisor began to harass him. One
month later, Luna told his supervisor that his neck continued to bother him and that he needed to return to the
company doctor; the next day that Luna was scheduled to work, he was fired.
Luna filed this suit asserting claims for unlawful retaliatory discharge under section 451.001 of the Labor Code
(“the Workers’ Compensation Act”). Tex. Lab. Code § 451.001–.003. Claiming that Poly-America acted with
malice, ill will, spite, or specific intent to cause injury, Luna sought both reinstatement and the imposition of
punitive damages. He additionally sought a declaratory judgment that the arbitration agreement was
unenforceable because, among other reasons, its provisions violated public policy and were unconscionable.
Luna submitted two affidavits — his own, and that of an expert witness — in support of his claims. Poly-
America responded with a motion to compel arbitration which, after a hearing, the trial court granted.
Luna sought a writ of mandamus in the court of appeals, reasserting his argument that provisions of the
arbitration agreement were substantively unconscionable. The court of appeals held that, in light of the fee-
splitting provisions and limitations on remedies, the arbitration agreement as a whole was substantively
unconscionable. 175 S.W.3d 315, 318. Poly-America sought review in this Court. We hold that the arbitration
agreement’s provision that eliminates available remedies under the Workers’ Compensation Act is
unenforceable, but we find that provision severable from the arbitration agreement as a whole and
conditionally grant Poly-America’s writ of mandamus.
II. Standard of Review
Mandamus is the proper means by which to seek review of an order compelling arbitration under the FAA. In
re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480, 483 (Tex. 2001). In In re Palacios, we recognized that it is
“important for federal and state law to be as consistent as possible” in enforcement and review of provisions
under the FAA. 221 S.W.3d 564, 565 (Tex. 2006) (per curiam) (quoting In re Kellogg Brown & Root, Inc., 166
S.W.3d 732, 739 (Tex. 2005)). Federal courts may not review orders compelling arbitration and staying
litigation (“compel-and-stay orders”) by interlocutory appeal. See 9 U.S.C. § 16(b)(1) (“[A]n appeal may not be
taken from an interlocutory order . . . granting a stay of any action under Section 3 of this title.”). Accordingly,
as we noted in Palacios, it would be inappropriate to exercise our own mandamus power in a manner
inconsistent with the federal courts’ practice. See Palacios, 221 S.W.3d at 565. Although mandamus review is
generally available in federal courts to review non-appealable interlocutory rulings, mandamus is granted only
in exceptional cases. See generally Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 288–90
& n.13 (1988) (holding that, where a particular order is not appealable, mandamus is available and “will be
appropriate in exceptional cases”). As we acknowledged in Palacios, federal courts have applied this template
to orders that cannot be appealed under the FAA, although they almost never grant mandamus relief. 221 S.
W.3d at 565-66 (“Even after Green Tree [Financial Corp.–Alabama v. Randolph, 531 U.S. 79 (2000)], the Fifth
Circuit has held that federal mandamus review of an order staying a case for arbitration may still be available if
a party can meet a ‘particularly heavy’ mandamus burden to show ‘clearly and indisputably that the district
court did not have the discretion to stay the proceedings pending arbitration.’”) (quoting Apache Bohai Corp.
v. Texaco China, B.V., 330 F.3d 307, 310–11 (5th Cir. 2003)). This general rule has been broadly applied to
unappealable ancillary interlocutory orders in proceedings under the FAA, see, e.g., Georgiou v. Mobil
Exploration & Prod. Servs., Inc. U.S., 1999 WL 642871 at *3 (5th Cir. July 27, 1999) (dismissing appeal of
order staying litigation in favor of arbitration proceeding in foreign forum, and denying mandamus because
plaintiffs failed to carry the “particularly heavy burden” to warrant mandamus relief from such an order); Cofab
Inc. v. Phila. Joint Bd., Amalgamated Clothing & Textile Workers Union, AFL–CIO–CLC, 141 F.3d 105, 110 (3d
Cir. 1998); and appears to also apply to compel-and-stay orders under section 16(b)(1), see Douglas v. U.S.
Dist. Court, 495 F.3d 1062, 1065 (9th Cir. 2007) (granting mandamus relief from compel-and-stay order);
Manion v. Nagin, 255 F.3d 535, 538–40 & n.4 (8th Cir. 2001) (dismissing appeal of various interlocutory
orders, including order compelling arbitration, and denying mandamus because Manion had not made “any
showing that he [was] entitled to such extraordinary relief”); McDermott Int’l, Inc. v. Underwriters at Lloyds
Subscribing to Memorandum of Ins. No. 104207, 981 F.2d 744, 748 (5th Cir. 1993) (“This court has
recognized that [mandamus review of an order compelling arbitration] may be available [but] McDermott has
failed to satisfy [the] demanding standard.”).[1]
Although federal precedent in this area is not uniformly clear, it appears a federal court would be permitted —
albeit not compelled — to address the merits of the mandamus arguments in this case. If such review were
categorically unavailable and unconscionability determinations the sole realm of arbitrators, as the dissenting
Justice proposes, development of the law as to this threshold issue would be substantially hindered if not
precluded altogether. Nevertheless, federal precedent counsels against granting relief unless the stringent
requirements for mandamus are met. See Gulfstream, 485 U.S. at 289. Federal courts grant mandamus only
upon demonstration of a “clear and indisputable” right to issuance of the writ: “First, the party seeking the
issuance of the writ must have no other adequate means to attain the relief he desires. . . . Second, the
petitioner must satisfy the burden of showing that his right to issuance of the writ is clear and indisputable.
Third . . . the issuing court, in the exercise of its discretion, must be satisfied that the writ is appropriate under
the circumstances.” Cheney v. U.S. Dist. Court, 542 U.S. 367, 380–81 (2004). Our own mandamus standard is
similar, requiring a demonstration that the trial court clearly abused its discretion by failing to correctly analyze
or apply the law and a determination that the benefits of mandamus outweigh the detriments such that an
appellate remedy is inadequate. See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004).
Because arbitration is intended to provide a lower-cost, expedited means to resolve disputes, mandamus
proceedings will often, if not always, deprive the parties of an arbitration agreement’s intended benefits when a
compel-and-stay order is at issue; accordingly, courts should be hesitant to intervene. With these standards in
mind, we turn to the compel-and-stay order in this case.
III. Unconscionability and the Federal Arbitration Act
Poly-America argues that the FAA’s “strong presumption” favoring arbitration applies in this case, and
furthermore that the FAA preempts all state public-policy grounds for finding the agreement to arbitrate
unenforceable. See In re R&R Personnel Specialists of Tyler, Inc., 146 S.W.3d 699, 705 (Tex. 2004) (holding
that the FAA preempts “any public policy underlying the Texas workers’ compensation statutes that is contrary
to the enforceability of arbitration agreements”). Because neither this presumption nor federal preemption
applies in a state court’s assessment of whether parties have entered intoa valid and enforceable agreement
to arbitrate under state contract law, we disagree.
Section 2 of the FAA provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 (emphasis
added). Thus, an agreement to arbitrate is valid under the FAA if it meets the requirements of the general
contract law of the applicable state. In re AdvancePCS Health L.P., 172 S.W.3d 603, 606 (Tex. 2005) (citing
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). In determining the validity of an agreement
to arbitrate under the FAA, courts must first apply state law governing contract formation. See 9 U.S.C. § 2;
First Options, 514 U.S. at 944. The United States Supreme Court has repeatedly emphasized that “state law,
whether of legislative or judicial origin, is applicable [to the determination of the validity of an agreement to
arbitrate] if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts
generally.” Perry v. Thomas, 482 U.S. 483, 493 n.9 (1987). Thus, courts “may not . . . invalidate arbitration
agreements under state laws applicable only to arbitration provisions.” Doctor’s Assocs., Inc. v. Casarotto, 517
U.S. 681, 687 (1996); see also Perry, 482 U.S. at 493 n.9 (“A state-law principle that takes its meaning
precisely from the fact that a contract to arbitrate is at issue does not comport with [section 2].”).
However, the purpose and language of the FAA require only that agreements to arbitrate be placed “upon the
same footing as other contracts.” Doctor’s Assocs., 517 U.S. at 687 (quoting Scherk v. Alberto-Culver Co., 417
U.S. 506, 511 (1974)) (emphasis added); see also H.R. Rep. No. 68-96, at 1 (1924) (noting that by enacting
section 2, Congress sought to place agreements to arbitrate “upon the same footing as other contracts, where
[they] belong[]”). Perry makes clear that state courts may not fashion special rules regarding the enforceability
of arbitration contracts per se. See Perry, 482 U.S. at 492 n.9. Furthermore, once an enforceable contract to
arbitrate is found, there is a strong federal presumption in favor of arbitration such that myriad doubts — as to
waiver, scope, and other issues not relating to enforceability — must be resolved in favor of arbitration. See, e.
g., In re FirstMerit Bank, 52 S.W.3d 749, 752 (Tex. 2001); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896,
898–99 (Tex. 1995). However, a state court must initially determine — through the neutral application of its
own contract law — whether an enforceable agreement exists in the first instance, and whether “generally
applicable contract defenses . . . may be applied to invalidate arbitration agreements without contravening” the
policies of the FAA. Doctor’s Assocs., 517 U.S. at 687. Thus, in this case, if a contract limiting damages or
restricting other remedies under the Workers’ Compensation Act is generally unenforceable under Texas law,
an arbitration contract with these same limitations will also be unenforceable.
Nevertheless, under Texas law, as with any other contract, agreements to arbitrate are valid unless grounds
exist at law or in equity for revocation of the agreement. The burden of proving such a ground — such as
fraud, unconscionability or voidness under public policy — falls on the party opposing the contract. See
FirstMerit Bank, 52 S.W.3d at 756. Thus, while we reject Poly-America’s assertions that we must apply a
presumption favoring arbitration in assessing whether the parties entered into an enforceable agreement
under Texas law and that the FAA preempts Texas public policies that may make certain contractual
provisions generally unenforceable, Luna nevertheless bears the burden to establish that the challenged
provisions are unenforceable.
IV. Arbitration and Unconscionability Under Texas Law
A. General Standard
Agreements to arbitrate disputes between employers and employees are generally enforceable under Texas
law; there is nothing per se unconscionable about an agreement to arbitrate employment disputes and, in fact,
Texas law has historically favored agreements to resolve such disputes by arbitration. See Advance PCS, 172
S.W.3d at 608; EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996); Cantella & Co. v. Goodwin, 924 S.
W.2d 943, 944 (Tex. 1996).
Unconscionable contracts, however — whether relating to arbitration or not — are unenforceable under Texas
law. A contract is unenforceable if, “given the parties’ general commercial background and the commercial
needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the
circumstances existing when the parties made the contract.” FirstMerit Bank, 52 S.W.3d at 757; see also In re
Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) (“[S]ubstantive unconscionability . . . refers to the fairness of
the arbitration provision itself.”). Unconscionability is to be determined in light of a variety of factors, which aim
to prevent oppression and unfair surprise; in general, a contract will be found unconscionable if it is grossly
one-sided. See Dan B. Dobbs, 2 Law of Remedies 703, 706 (2d ed. 1993); see also Restatement (Second) of
Contracts § 208, cmt. a (1979) (“The determination that a contract or term is or is not unconscionable is made
in the light of its setting, purpose, and effect. Relevant factors include weaknesses in the contracting process
like those involved in more specific rules as to contractual capacity, fraud, and other invalidating causes; the
policy also overlaps with rules which render particular bargains or terms unenforceable on grounds of public
policy.”). Although not subject to precise doctrinal definition, see Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d
493, 498 (Tex. 1991) (Gonzalez, J., concurring), unconscionability — as delineated by the above principles —
has been recognized and applied by this Court for well over a century. See, e.g., Flanagan v. Pearson, 61
Tex. 302, 307 (1884); Fowler v. Stoneum, 11 Tex. 478, 493 (1854); Hemming v. Zimmerschitte, 4 Tex. 159,
166 (1849); Luckett v. Townsend, 3 Tex. 119, 131 (1848).
Whether a contract is contrary to public policy or unconscionable at the time it is formed is a question of law.
Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 562 (Tex. 2006). Because a trial court has no discretion to
determine what the law is or apply the law incorrectly, its clear failure to properly analyze or apply the law of
unconscionability constitutes an abuse of discretion. See Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992).
B. Arbitration and Statutory Rights
An arbitration agreement covering statutory claims is valid so long as the arbitration agreement does not waive
the substantive rights and remedies the statute affords and the arbitration procedures are fair, such that the
employee may “effectively vindicate his statutory rights.” In re Halliburton, 80 S.W.3d at 572. Federal courts,
analyzing the enforceability of arbitration provisions relating to federal statutory claims, have noted that such
contracts are not enforceable when a party is forced to “forgo the substantive rights afforded by the statute,”
as opposed to merely “submit[ting] to resolution in an arbitral, rather than a judicial, forum.” Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985). In the context of federal claims, either an
expression of federal intent to exclude certain categories of claims from arbitration, see Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991), or the excessive waiver of statutory rights, see
Mitsubishi, 473 U.S. at 628, may render a particular dispute un-arbitrable. State courts, bound by the FAA
under the supremacy clause, have more limited power, as the FAA preempts state laws that specifically
disfavor arbitration. Perry, 482 U.S. at 492 n.9; see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.
1992) (holding that the FAA preempts state statutes to the extent they are inconsistent with the FAA’s purpose
to require courts to compel arbitration when the parties have so provided in their contracts).
However, where a particular waiver of substantive remedies or other provision of a contract is unconscionable
— independent of the agreement to arbitrate — it will be unenforceable even though included in an agreement
to arbitrate. See Gilmer, 500 U.S. at 33 (“[A]rbitration agreements are enforceable, ‘save upon such grounds
as exist at law or in equity for the revocation of any contract.’”) (quoting 9 U.S.C. § 2). To determine the
permissibility of restrictions on a particular worker’s access to statutory rights, we analyze the provisions of the
actual statute at issue; thus, to analyze the enforceability of the various restrictions and waivers in the
employment contract at issue in this case, we turn to the retaliatory-discharge provisions of the Texas
Workers’ Compensation Act, Tex. Lab. Code §§ 451.001–.003.
C. Purpose and Structure of the Texas Workers’ Compensation Act’s Anti-Retaliation Provisions
The Texas Workers’ Compensation Act was enacted to protect Texas workers and employees. Fid. & Cas. Co.
of N.Y. v. McLaughlin, 135 S.W.2d 955, 956 (Tex. 1940). The Texas Legislature enacted the original Workers’
Compensation Act in 1913 in response to the needs of workers who, despite a growing incidence of industrial
accidents, were increasingly being denied recovery. Kroger Co. v. Keng, 23 S.W.3d 347, 350 (Tex. 2000);
Tex. Workers’ Compensation Comm’n v. Garcia, 893 S.W.2d 504, 510 (Tex. 1995). In order to ensure
compensation for injured employees while protecting employers from the costs of litigation, the Legislature
provided a mechanism by which workers could recover from subscribing employers without regard to the
workers’ own negligence, see Kroger, 23 S.W.3d at 351, while limiting the employers’ exposure to uncertain,
possibly high damage awards permitted under the common law, see Reed Tool Co. v. Copelin, 689 S.W.3d
404, 407 (Tex. 1985). In light of the purposes of the Workers’ Compensation Act as a whole, “[i]t is the settled
policy of this State to construe liberally the provisions of the . . . [l]aw, in order to effectuate the purposes for
which it was enacted.” Huffman v. S. Underwriters, 128 S.W.2d 4, 6 (Tex. 1939) (citations omitted). As we have
recently noted, “[b]ecause we should liberally construe the Workers’ Compensation Act in favor of the injured
worker, a strained or narrow construction of [the Act] would be improper. Moreover, it would be injudicious to
construe the statute in a manner that supplies by implication restrictions on an employee’s rights that are not
found in . . . [the] plain language.” Kroger, 23 S.W.3d at 349.
The Texas Workers’ Compensation Act provides that a subscriber to the workers’-compensation system may
not “discharge or in any other manner discriminate against an employee because the employee has . . . filed a
workers’ compensation claim in good faith.” Tex. Lab. Code § 451.001–.001(1). The Legislature’s purpose in
enacting section 451.001 was to protect persons entitled to benefits under the Act and to prevent them from
being discharged for seeking to collect those benefits. See Tex. Steel Co. v. Douglas, 533 S.W.2d 111, 115
(Tex. Civ. App.—Fort Worth 1976, writ ref’d n.r.e.). Since recovery of benefits under the Workers’
Compensation Act is the exclusive remedy available to injured employees of subscribing employers, see Tex.
Lab. Code § 408.001(a), the availability of remedies for retaliatory discharge protects employees’ exercise of
their statutory rights to compensation under the Act. See Padilla v. Carrier Air Conditioning, 67 F. Supp. 2d
650, 664 (E.D. Tex. 1999); Mid-South Bottling Co. v. Cigainero, 799 S.W.2d 385, 389 (Tex. App.—Texarkana
1990, writ denied). In accordance with these principles, the anti-retaliation provisions of the Act must protect
employees even before they have actually filed a claim, because otherwise “the law would be completely
useless and would not accomplish the purpose for which it was enacted. . . . [A]ll the employer would have to
do in order to avoid the consequences of the statute would be to fire the injured workman before he filed the
claim.” Tex. Steel Co., 533 S.W.2d at 115. “The decisions of this State do not look with favor upon
contracts waiving rights arising under the Workmen’s Compensation Law.” Huffman, 128 S.W.2d at 6. Such
waivers affect not only the individual employee subject to the waiver, but also the public, which bears the cost
of the workers’ compensation program. See Holt v. Cont’l Group, Inc., 708 F.2d 87, 91 (2d Cir. 1983) (“A
retaliatory discharge carries with it the distinct risk that other employees may be deterred from protecting their
rights under the Act.”). Therefore, we have invalidated contracts that purport to relieve employers of their
obligations under the Workers’ Compensation Act. See James v. Vernon Calhoun Packing Co., 498 S.W.2d
160, 162 (Tex. 1973) (noting that “[w]e are much impressed with the idea that there is a large element of
public interest in the administration of [the Workers’ Compensation Act]”); Hazelwood v. Mandrell Indus. Co.,
596 S.W.2d 204, 206 (Tex. Civ. App.—Houston [1st Dist.] 1990, writ ref’d n.r.e.) (“If . . . this balance
[established by the Act] is tipped so that the employee’s benefits under the statute are substantially reduced,
the clear intent of the legislature is thwarted.”). We have likewise held unenforceable contracts that explicitly
relieve employers of tort liability, relying either on common law prohibitions against such contracts, see
Barnhart v. Kansas City M. & O. Ry. Co. of Tex., 184 S.W. 176, 179 (Tex. 1916), or upon the Workers’
Compensation Act, see Petroleum Cas. Co. v. Smith, 274 S.W.2d 150, 151 (Tex. Civ. App.—San Antonio
1954, writ ref’d) (noting that “[t]he right to workmen’s compensation is statutory, and cannot be abridged by
private agreements or special applications for employment”); Clevenger v. Burgess, 31 S.W.2d 675, 678 (Tex.
Civ. App.—Beaumont 1930, writ ref’d); Tex. Employers Ins. Ass’n v. Peppers, 133 S.W.2d 165, 167 (Tex. Civ.
App.—Galveston 1939, writ dism’d) (“[T]he courts will not enforce contracts which are either expressly or
impliedly prohibited by the [Workers’ Compensation] Act.”).
This case concerns the validity of a subscribing employer’s use of an agreement that, in the course of
requiring arbitration between the parties in work-related disputes, imposes a series of procedural and
substantive limits on the employee’s rights. We must analyze the challenged limitations in light of the policies
underlying the Workers’ Compensation Act, and the purposes of its anti-retaliation provisions, to determine
whether they improperly shift the cost of injury from a subscribing employer onto its employees in
contravention of the Act’s provisions. Cf. Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 550 (Tex. 2001)
(noting that the agreements did not “shift the risk of on-the-job injuries to the employees”); see also Gentry v.
Superior Court, 165 P.3d 556, 782 (Cal. 2007), cert. denied ___ U.S. ___ (2008) (noting that under California
law, when an employee is bound by a predispute arbitration agreement to adjudicate nonwaivable statutory
employment rights, the arbitration agreement may not limit damages, discovery must be sufficient to arbitrate
the claim, there must be a written arbitration decision, and the employer must pay all costs “unique to
arbitration”).
V. The Challenged Arbitration Provisions
A. Limitation of Remedies
The Workers’ Compensation Act specifies that “[a] person who violates section 451.001 is liable for
reasonable damages incurred by the employee as a result of the violation,” and that “[a]n employee
discharged in violation of section 451.001 is entitled to reinstatement in the former position of employment.”
Tex. Lab. Code § 451.002(a)–(b). We have previously explained that “reasonable damages” are not limited to
actual damages, see Azar Nut Co. v. Caille, 734 S.W.2d 667, 669 (Tex. 1987), but may include future
damages, as well as exemplary or punitive damages when it is shown that the employer acted with actual
malice in retaliating against the employee for filing a workers’ compensation claim. See Cont’l Coffee Prods. v.
Cazarez, 937 S.W.2d 444, 454 (Tex. 1996); Carnation Co. v. Borner, 610 S.W.2d 450, 454–55 (Tex. 1980).
The arbitration agreement in this case eliminates two types of remedies available under the anti-retaliation
provisions of the Workers’ Compensation Act, prohibiting the arbitrator from ordering reinstatement or
awarding punitive damages. See Tex. Lab. Code § 451.002 (providing for reinstatement and an award of
reasonable damages). Luna contends these limitations render the agreement unconscionable and
unenforceable because they prevent him from effectively vindicating his statutory rights in arbitration, thus
undercutting the basic assumptions of the FAA. See Gilmer, 500 U.S. at 28 (noting that claims under other
federal statutes are appropriate for arbitration so long as the litigant can effectively vindicate any statutory
rights). The court of appeals agreed with Luna. 175 S.W.3d at 323–24. Although it noted other courts’
decisions upholding punitive-damages waivers, id. at 323, and further noted that preclusion of statutory
remedies may not always portend unconscionability, id., the court held that the preclusion of remedies here
interfered with Luna’s ability to bring his retaliatory-discharge claim under the Workers’ Compensation Act and
thus weighed toward the contract’s unconscionability, id. Poly-America argues that the court of appeals’
decision conflicts with Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 822 (Tex. App.—San Antonio
1996, no writ), and decisions of other courts indicating that limitations of remedies are permissible, e.g., Inv.
Partners v. Glamour Shots Licensing, Inc., 298 F.3d 314, 318 n.1 (5th Cir. 2002). Because we view the anti-
retaliation provisions of the Workers’ Compensation Act as a non-waivable legislative system for deterrence
necessary to the nondiscriminatory and effective operation of the Texas Workers’ Compensation system as a
whole, we agree with Luna that the provisions eliminating key remedies under the statute are unenforceable.
An arbitration agreement covering statutory claims is valid so long as “the arbitration agreement does not
waive substantive rights and remedies of the statute and the arbitration procedures are fair so that the
employee may effectively vindicate his statutory rights.” In re Halliburton, 80 S.W.3d at 572. “‘[B]y agreeing to
arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits
to their resolution in an arbitral, rather than a judicial, forum.’” Gilmer, 500 U.S. at 26 (quoting Mitsubishi, 473
U.S. at 628). In this case, Luna contends Poly-America acted with actual malice in unlawfully discharging him, a
claim for which the Workers’ Compensation Act allows punitive damages. See Tex. Lab. Code § 451.002; Azar
Nut Co., 734 S.W.2d at 668. Permitting an employer to contractually absolve itself of this statutory remedy
would undermine the deterrent purpose of the Workers’ Compensation Act’s anti-retaliation provisions. In
creating the Texas Workers’ Compensation Act, the Legislature carefully balanced competing interests — of
employees subject to the risk of injury, employers, and insurance carriers — in an attempt to design a viable
compensation system, all within constitutional limitations. See Garcia, 893 S.W.2d at 521. Were we to endorse
Poly-America’s position and permit enforcement of these remedy limitations, a subscribing employer could
avoid the Act’s penalties by conditioning employment upon waiver of the very provisions designed to protect
employees who have been the subject of wrongful retaliation.
Our decision in Lawrence, 44 S.W.3d 544, is fully consistent with this view. There, employees of a non-
subscribing employer elected, after they were hired, to participate in an employer benefit plan that would
provide injured employees with specified benefits in lieu of common law remedies. Id. at 545–46. We refused
to void the agreement on public-policy grounds, discerning “no clear legislative intent to prohibit agreements
such as those presented.” Id. at 545. We emphasized that participation in the workers’ compensation program
is voluntary for employers in Texas, and that courts are ill equipped to weigh whether a non-subscribing
employer’s particular benefits plan would undermine the purposes of the Workers’ Compensation Act. See id.
at 551–53.[2] Our decision was specifically tailored to non-subscribing employers who elected not to
participate in the workers’ compensation program. Importantly, we distinguished cases involving contracts
imposed as a condition of employment, emphasizing that “[t]he distinction between an employment contract
that requires a prospective employee, as a condition of the receipt or retention of employment, to agree to limit
the employer’s liability . . . and a voluntary occupational insurance program, in which the employee has the
option to enroll . . . is decisive.” Lawrence, 44 S.W.3d at 550 (quoting Brito v. Intex Aviation Servs., Inc., 879 F.
Supp. 650, 654 (N.D. Tex. 1995)) (citing Clevenger, 31 S.W.2d at 678; Barnhart, 184 S.W.at 176)).
This case presents just such a liability-limiting provision, imposed as a condition of employment, which we
suggested in Lawrence would violate public policy. See id. Such waivers would allow subscribing employers to
enjoy the Act’s limited-liability benefits while exposing workers to exactly the sort of costs — of injuries paid for
by the employee for fear of retribution for making a claim — that the Act is specifically designed to shift onto
the employer. The balance established by the Act is thus “tipped so that the employee’s benefits under the
statute are substantially reduced, [and] the clear intent of the legislature is thwarted.” Hazelwood, 596 S.W.2d
at 206. As we have previously refused to enforce private agreements that allow subscribing employers to reap
the system’s benefits while burdening employees with the cost of injury, so too we find the provisions of the
present contract — which substantively limit Poly-America’s liability for wrongful retaliation and thereby
undermine the deterrent regime the Legislature specifically designed to protect Texas workers — void under
Texas law. See Tex. Steel, 533 S.W.2d at 115; Holt, 708 F.2d at 91.
B. Fee-Splitting Provision
The arbitration agreements provide that, in the event of a claim, all fees related to arbitration — including but
not limited to mediation fees, the arbitrators’ fees, costs of procuring a location for a hearing, and court
reporter fees — will be split equally between the employer and the employee, with the employee’s contribution
capped at an amount equal to “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.” The court of appeals held
that this provision “weigh[ed] heavily toward a finding of substantive unconscionability.” 175 S.W.3d at 322.
Poly-America argues that this was clear error: first, because the court of appeals improperly inferred that Luna
could not afford likely arbitration costs based solely on subjective evidence and, second, because it failed to
compare such costs to the expected costs of litigation.[3] Luna responds that it was Poly-America that failed to
present evidence of the comparative cost of litigation and that the evidence presented was sufficient to allow
an objective determination that the likely costs of arbitration were beyond Luna’s financial means. We begin
with the evidentiary challenge.
1. Evidentiary Challenge
Poly-America claims that the court of appeals, by crediting Luna’s factual allegations concerning his financial
inability to share arbitration costs, improperly applied a new evidentiary standard that will require all parties
seeking to compel arbitration to engage in expensive discovery whenever a resisting party submits cursory
and subjective evidence that arbitration costs are “unaffordable.” This evidentiary burden, Poly-America
argues, is contrary to Texas law and policy that supports summary disposition of motions to compel arbitration.
In response, Luna contends the facts upon which the court of appeals relied could have been controverted by
affidavit or cross-examination, which Poly-America failed to do; consequently, the court of appeals based its
ruling on the undisputed facts established by Luna’s affidavits. Both parties cite Anglin, 842 S.W.2d at 269, to
support their respective positions. There, we defined the proper circumstances under which a trial court
should hold a full evidentiary hearing on a motion to compel arbitration:
Because the main benefits of arbitration lie in expedited and less expensive disposition of a dispute, and the
legislature has mandated that a motion to compel arbitration be decided summarily, we think it unlikely that the
legislature intended the issue to be resolved following a full evidentiary hearing in all cases. We also envision
that the hearing at which a motion to compel arbitration is decided would ordinarily involve application of the
terms of the arbitration agreement to undisputed facts, amenable to proof by affidavit. With these
considerations in mind, we hold that the trial court may summarily decide whether to compel arbitration on the
basis of affidavits, pleadings, discovery, and stipulations. However, if the material facts necessary to determine
the issue are controverted, by an opposing affidavit or otherwise admissible evidence, the trial court must
conduct an evidentiary hearing to determine the disputed material facts. Id.
Because the only facts Luna presented on the motion to compel were uncontroverted under this standard —
Luna’s affidavits accompanying his original petition were neither contradicted nor challenged in Poly-America’s
response — we believe the court of appeals acted properly in crediting those facts on appeal.
Luna attached to his original petition his own affidavit and that of an expert witness providing detailed
estimates of the likely cost of arbitration in Luna’s case, and Luna’s expected share under the agreement’s
capped fee-splitting provision based on his monthly salary (approximately $3,300.00) as a Poly-America
supervisor. Luna described his anticipated share of the arbitration costs as “way more money than I can
afford,” and averred that, if he had to pay such an amount to have his claim determined, he would be unable
to pursue his claim against the company unless he could find an attorney willing to pay those fees. Luna
recounted that he had attempted to retain two attorneys, but they had refused to represent him on a
contingent-fee basis because of the arbitration agreement. Poly-America did not dispute these facts but
asserted legal arguments in its pleadings that the cost provisions, as written or as applied, were not
unconscionable under Texas law. At the hearing on its motion to compel, Poly-America again asserted only
legal arguments in response to Luna’s challenge to the cost-splitting provision. There is no indication in the
record that the trial court discredited or otherwise viewed the facts recited in Luna’s affidavits as insufficient;
rather, on the basis of Poly-America’s legal arguments, the trial court granted the motion to compel. This
disposition was consistent with our statements in Anglin in which we indicated that motions to compel should be
decided summarily unless disputed issues of fact require a full evidentiary hearing. See id.
However, the court of appeals clearly differed from the trial court in its view of the law. It held that the trial court’
s granting of the motion to compel — in light of Luna’s averred inability to afford his likely arbitration costs and
the agreement’s other limitations — was an abuse of discretion. 175 S.W.3d at 318–20. In doing so, the court
of appeals properly credited the undisputed facts contained in Luna’s affidavits as to the total expected cost of
arbitration and Luna’s anticipated share based upon his pre-termination monthly income. Id. at 319–20. Poly-
America contends the court of appeals improperly ruled based on Luna’s subjective, and thus practically
incontrovertible, belief that he could not afford arbitration, which does not satisfy this Court’s requirements of
“specific” evidence to support claims of unconscionably expensive arbitration. See In re U.S. Home Corp., 236
S.W.3d 761, 764 (Tex. 2007). However, the court of appeals relied not solely upon Luna’s belief but upon his
and his expert’s specific monetary estimates, which provided objective support for Luna’s uncontroverted claim
that arbitration costs would preclude his pursuit of the lawsuit. See 175 S.W.3d at 319. The court of appeals
did not, therefore, rely solely on subjective and incontrovertible allegations.
2. Unconscionability of Fee-Splitting Provisions
Poly-America alternatively challenges the court of appeals’ conclusion that the agreement’s cost-allocation
provisions favor a finding of unconscionability because the court did not consider the relative costs that Luna
would likely incur if the case were litigated in court — costs that, based on Poly-America’s estimates, would
greatly exceed the capped cost of arbitration — and Luna failed to provide any evidence of the actual cost of
arbitration that he would bear. Although we have no doubt that some fee-splitting provisions may operate to
discourage employees like Luna from seeking vindication of their rights under the Workers’ Compensation Act,
we must agree with Poly-America that the trial court did not abuse its discretion in ordering arbitration in this
case.
Courts across the country have universally condemned the use of fee-splitting agreements in employment
contracts that have the effect of deterring potential litigants from vindicating their statutory rights in an arbitral
forum. See Green Tree, 531 U.S. at 90–91. Some courts have gone so far as to find fee-sharing agreements
unenforceable per se. See, e.g., Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1483–85 (D.C. Cir. 1995),
cited in Halliburton, 80 S.W.3d at 572; Shankle v. B-G Maint. Mgmt. of Colo., Inc., 163 F.3d 1230, 1233–35
(10th Cir. 1999); Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1062 (11th Cir. 1998). These
courts reason that “an employee can never be required, as a condition of employment, to pay an arbitrator’s
compensation in order to secure the resolution of statutory claims . . . . [T]his would surely deter the bringing
of arbitration and constitute a de facto forfeiture of statutory rights.” Cole, 105 F.3d at 1468; accord Shankle,
163 F.3d at 1235 (“Such a result clearly undermines the remedial and deterrent functions of . . . anti-
discrimination laws.”).
We agree that fee-splitting provisions that operate to prohibit an employee from fully and effectively vindicating
statutory rights are not enforceable. See Halliburton, 80 S.W.3d at 572. However, this Court joins the majority
of other courts which — though recognizing the same policy concerns articulated by courts holding fee-
splitting arrangements per se unconscionable — require some evidence that a complaining party will likely
incur arbitration costs in such an amount as to deter enforcement of statutory rights in the arbitral forum. See
U.S. Home Corp., 236 S.W.3d at 764; FirstMerit Bank, 52 S.W.3d at 756–57. As federal courts have likewise
recognized:
[I]n some cases, the potential of incurring large arbitration costs and fees will deter potential litigants from
seeking to vindicate their rights in the arbitral forum . . . . [I]f the fees and costs of the arbitral forum deter
potential litigants, then that forum is clearly not an effective, or even adequate, substitute for the judicial forum
. . . . [T]he burden of demonstrating that incurring such costs is likely under a given set of circumstances rests,
at least initially, with the party opposing arbitration.
Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 659-60 (6th Cir. 2003); accord Bradford v. Rockwell
Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir. 2001); Rosenberg v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 170 F.3d 1, 16 (1st Cir. 1999).
Luna contends the magnitude of the fee he could incur under the arbitration agreement, which he estimates to
be as high as $3,300, will prevent him from pursuing his claim. Poly-America counters that litigation costs
would be much higher, and therefore the arbitration agreement’s capped cost-splitting provision benefits the
employee and cannot be unconscionable. It is true that in evaluating the enforceability of fee-splitting
provisions, some courts take into account the relative costs of arbitration versus litigation. See, e.g., Bradford,
238 F.3d at 556 n.5 (focusing upon “a claimant’s expected or actual arbitration costs and his ability to pay
those costs, measured against a baseline of the claimant’s expected costs for litigation and his ability to pay
those costs”). However, at this stage of the proceedings, much of this evidence is necessarily speculative, and
thus counsels against a court’s ex ante interference with arbitration.
We do not doubt that arbitration costs might be so high in a given case as to preclude access to the forum.
But “the ‘risk’ that [a claimant] will be saddled with prohibitive costs is too speculative to justify the invalidation
of an arbitration agreement.” Green Tree, 531 U.S. at 91. Luna has not demonstrated that the ability to pursue
his claim in the arbitral forum hinges upon his payment of the estimated costs; to the contrary, depending
upon the circumstances, Luna may not have to bear any cost at all, and Poly-America has presented some
evidence that the capped cost-splitting arrangement may even benefit Luna. The fee-splitting provision in
Luna’s arbitration agreement caps his share of costs at “the gross compensation earned by Employee in
Employee’s highest earning month in the twelve months prior to the time the arbitrator issues his award.”
(Emphasis added). Luna, however, presented evidence of his “highest monthly salary in the year preceding
[his] termination from the company,” a period necessarily earlier than that relevant under the arbitration
agreement. The record contains no fact-based estimation of Luna’s wages in the relevant time period and,
thus, no evidence of his likely share of arbitration costs.
Just as we allow litigants who demonstrate an inability to pay costs to proceed with their claims in court,
however, we see nothing that would prevent arbitrators from fairly adjusting employee cost provisions when
necessary to allow full vindication of statutory rights in the arbitral forum. See Tex. R. Civ. P. 145. The contract
presented in this case specifically provides that the arbitrator may modify unconscionable terms; if the cost
provisions precluded Luna’s enforcement of his non-waivable statutory rights, they would surely be
unconscionable for the reasons we have explained and the arbitrator would be free to modify them. The
arbitrator is better situated to assess whether the cost provision in this case will hinder effective vindication of
Luna’s statutory rights and, if so, to modify the contract’s terms accordingly. See Halliburton, 80 S.W.3d at
572. We conclude the trial court did not abuse its discretion in refusing to declare the contract’s cost-splitting
provision unconscionable and nullify the arbitration agreement.
C. Discovery Limitations
The 2002 agreement provides that each party may serve on the other a single set of twenty-five
interrogatories (including sub-parts) and one set of twenty-five requests for production or inspection of
documents or tangible things. Additionally, the agreement includes limitations alleged by Luna to be
unconscionable: (1) a limitation of each party to a single, six-hour deposition; (2) a prohibition on requests for
admission; (3) a ban on inquiry into Poly-America’s finances; and (4) a confidentiality provision requiring
confidentiality of the parties and their attorneys regarding all aspects of the arbitration. Luna contends these
limitations make it virtually impossible for him to prove his claim of retaliatory discharge and render the
arbitration agreement unconscionable.
Although an issue of first impression in this Court, several courts around the country have analyzed the
enforceability of similar arbitration provisions limiting parties’ access to various forms of discovery. Applying a
rule functionally equivalent to that used to analyze fee-splitting provisions, these courts refuse to enforce such
limitations when adequate evidence is presented that a plaintiff’s ability to present his or her claims in an
arbitral forum is thereby hindered. See, e.g., Hulett v. Capitol Auto Group, Inc., No. 07-6151-AA, 2007 WL
3232283, at *4–*5 (D. Or. Oct. 29, 2007) (holding discovery restrictions that prohibited requests for admission
or interrogatories and limited parties to three depositions unconscionable because they “serve to
unreasonably withhold information from plaintiff that would otherwise be available through discovery, thus
hindering her ability to present her claims in an arbitration forum”); accord Ostroff v. Alterra Healthcare Corp.,
433 F. Supp. 2d 538, 547 (E.D. Pa. 2006). Courts upholding arbitration provisions containing discovery
limitations have done so in recognition of the same principle, but determined that a particular party failed to
provide adequate evidence that the provisions “prove insufficient to allow . . . claimants . . . a fair opportunity
to present their claims.” Gilmer, 500 U.S. at 31; see, e.g., In re Cotton Yarn Antitrust Litig., 505 F.3d 274, 286–
87 (4th Cir. 2007); Amisil Holdings, Ltd. v. Clarium Capital Mgmt., No. C06-05255MJJ, 2007 WL 2768995, at *4
(N.D. Cal. Sept. 20, 2007) (“[Claimant] has not adequately demonstrated why arbitration under the AAA rules
would deny it a fair opportunity to present its claims.”).
We agree with these courts that, where the underlying substantive right is not waivable, ex ante limitations on
discovery that unreasonably impede effective prosecution of such rights are likewise unenforceable. However,
because the relevant inquiry depends upon the facts presented in a given case and the particular discovery
limitations’ effect upon the relevant statutory regime, we are doubtful that courts — assessing claims and
discovery limitations before arbitration begins — are in the best position to accurately determine which limits
on discovery will have such impermissible effect.
In this case, Luna’s expert witness testified that in most employment-discharge cases the employer only needs
to take the plaintiff’s deposition, while the plaintiff generally needs testimony from a number of witnesses to
disprove the employer’s likely defense that termination was based on poor performance. Additionally, the
expert stated, the employee will likely wish to depose additional witnesses to show a pattern or practice of
discrimination, whereas the employer typically has a ready pool of available employees and managers to
assist in preparing for the arbitration. For these reasons, the expert concluded, the arbitration agreement’s
discovery limitations “significantly reduce the plaintiff’s ability to prevail in arbitration, regardless of how strong
a plaintiff’s case is on the merits.” We agree that if the discovery limitations the arbitration agreement imposes
operate to prevent effective presentation of Luna’s claim they would be unenforceable. But at this point in the
proceedings, without knowing what the particular claims and defenses — and the evidence needed to prove
them — will be, discerning the discovery limitations’ potential preclusive effect is largely speculative. The
assessment of particular discovery needs in a given case and, in turn, the enforceability of limitations thereon,
is a determination we believe best suited to the arbitrator as the case unfolds. As with cost-sharing, discovery
limitations that prevent vindication of non-waivable rights or “prove insufficient to allow [Luna] a fair opportunity
to present [his] claims,” Gilmer, 500 U.S. at 31, would be unconscionable and thus not binding on the
arbitrator, as the agreement in this case specifically acknowledges. At this point in the proceedings, though,
we cannot conclude that the evidence presented to the trial court compelled a finding that the discovery
limitations were per se unconscionable. Thus, the trial court did not abuse its discretion.
D. Prohibition on Inquiry into “Good Cause”
Luna claims the arbitration provision that prohibits the arbitrator’s ability “to apply a ‘just cause’ or ‘good
cause’ standard to claims relating to Employee’s claims concerning his employment or separation therefrom” is
substantively unconscionable because it prohibits, in a retaliatory-discharge case, inquiry into whether the
employer had a valid, nondiscriminatory reason for firing the employee. Poly-America contends the contract
cannot be read as Luna claims, and in fact does not prevent such an inquiry. We agree with Poly-America,
and with the court of appeals, that this prohibition does not operate as Luna asserts; rather, the prohibition
simply emphasizes that the contract relates to at-will employment. See Montgomery County Hosp. Dist. v.
Brown, 965 S.W.2d 501, 502 (Tex. 1998). Thus, the prohibition prevents the arbitrator from substituting a
“good cause” requirement for the “at will” standard. The provision does not, however, prohibit inquiry into
whether Poly-America improperly terminated Luna in retaliation for his filing of a workers’ compensation claim.
Because we read the provision merely to articulate an accepted rule of employment contracts, and not to
restrict a necessary inquiry into the motivations behind Poly-America’s termination of Luna in this case, we
agree with the court of appeals that the provision is not unconscionable. See In re Palm Harbor Homes, Inc.,
195 S.W.3d 672, 678 (Tex. 2006) (rejecting a claim that an arbitration provision was substantively
unconscionable where the challenged provision “effectively incorporate[d] established provisions of contract
law”).
E. One-Year Limitations Period
The arbitration agreement includes a clause that requires written notice of a claim to be filed within a maximum
of one year from the events giving rise to an arbitrable claim. Luna contends this provision unconscionably
shortens the two-year statute of limitations applicable to claims of retaliatory discharge. See Johnson &
Johnson Med., Inc. v. Sanchez, 924 S.W.2d 925, 927 (Tex. 1996). However, as Luna filed this case well within
the one-year period and thus suffered no prejudice from this provision, it is immaterial to Luna’s claims of
substantive unconscionability.
F. Lifetime Application
Finally, Luna argues that the arbitration agreement unconscionably applies even to claims that may arise after
Luna’s employment with Poly-America has ended and which may have nothing to do with Luna’s employment.
While we can imagine circumstances that might present a closer question, Luna’s claims here concern his
employment and termination, the central focus of the agreement. We thus agree with the court of appeals that
this provision does not render the arbitration agreement per se unconscionable. See 175 S.W.3d at 326.
VI. Severability
The arbitration agreement in this case contains a severability clause, which provides as follows:
Should any term of this Agreement be declared illegal, unenforceable, or unconscionable, the remaining terms
of the Agreement shall remain in full force and effect. To the extent possible, both Employee and Company
desire that the Arbitrator modify the term(s) declared to be illegal, unenforceable, or unconscionable in such a
way as to retain the intended meaning of the term(s) as closely as possible.
Poly-America argues that, even if elements of its arbitration agreement with Luna are unconscionable,
arbitration is nevertheless required because the unconscionable provisions are severable from the general
agreement to arbitrate.[4] Luna contends the unconscionable provisions are integral to the entire contract and
are therefore not severable. The court of appeals agreed with Luna, stating that the fee-splitting and remedies-
limitation provisions “together deprive Luna of his opportunity to vindicate his claim in the arbitral forum” and
concluding that “those provisions are integral to the purpose of the agreement and cannot be severed.” 175 S.
W.3d at 328. The court of appeals came to this conclusion, it appears, by identifying the fee-splitting and
remedies-limitation provisions as weighing in favor of unconscionability “as a whole,” but the court did not
identify any particular provision that, by itself, would defeat the agreement’s purpose. See id. at 322, 324. We
have determined, however, that the remedies-limitation provisions are individually unconscionable and void,
and see no reason why they cannot be easily excised from the contract without defeating its underlying
purpose.
An illegal or unconscionable provision of a contract may generally be severed so long as it does not constitute
the essential purpose of the agreement. See Williams v. Williams, 569 S.W.2d 867, 871 (Tex. 1978); see also
Hoover Slovacek, 206 S.W.3d at 565 (citing Restatement (Second) of Contracts § 208 (1981)). Whether or not
the invalidity of a particular provision affects the rest of the contract depends upon whether the remaining
provisions are independent or mutually dependent promises, which courts determine by looking to the
language of the contract itself. See John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 86 (Tex. App.—
Houston [14th Dist.] 1996, writ denied) (citing Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707, 708 (Tex.
1982)). The relevant inquiry is whether or not parties would have entered into the agreement absent the
unenforceable provisions. See Patrizi v. McAninch, 269 S.W.2d 343, 348 (Tex. 1954); see also City of
Beaumont v. Int’l Ass’n of Firefighters, Local Union No. 399, 241 S.W.3d 208, 215 (Tex. App.—Beaumont
2007, no pet.) (citing Rogers v. Wolfson, 763 S.W.2d 922, 925 (Tex. App.—Dallas 1989, writ denied));
Stroman, 923 S.W.2d at 86 (citing Frankiewicz v. Nat’l Comp. Assocs., 633 S.W.2d 505, 507–0 8 (Tex. 1982)).
We have previously allowed severance of illegal contract provisions where the invalid provisions were “only a
part of the many reciprocal promises in the agreement” and “did not constitute the main or essential purpose
of the agreement.” Williams, 569 S.W.2d at 871.
The 2002 version of the arbitration agreement in this case is over five pages long and contains numerous
provisions not challenged by Luna as imposing any unconscionable burdens: procedures for mediation,
selection of a neutral arbitrator, filing of motions, and other general provisions governing arbitration
procedures. We agree with Poly-America that the intent of the parties, as expressed by the severability clause,
is that unconscionable provisions be excised where possible. Furthermore, it is clear by the contract’s terms
that the main purpose of the agreement is for the parties to submit their disputes to an arbitral forum rather
than proceed in court. See id. Excising the unconscionable provisions we have identified will not defeat or
undermine this purpose, which we have upheld in the context of agreements to arbitrate employment disputes.
See AdvancePCS, 172 S.W.3d at 608; EZ Pawn Corp., 934 S.W.2d at 90; Cantella & Co., 924 S.W.2d at 944.
VII. Conclusion
We hold invalid, as substantively unconscionable and void, provisions of the parties’ contract that prohibit the
award of punitive damages or reinstatement and thus inhibit effective vindication of Luna’s retaliatory-
discharge claim in an arbitral forum. We further hold that the trial court did not abuse its discretion in allowing
the arbitrator to determine whether the fee-splitting agreement and discovery limitations — as applied in the
course of arbitration — are unconscionable. Because we find the invalid remedies-limitation provisions
severable from the agreement to arbitrate, which we conclude is otherwise enforceable, the trial court did not
abuse its discretion in compelling arbitration. Accordingly, we conditionally grant the writ of mandamus.
___________________________________
Harriet O’Neill
Justice
OPINION DELIVERED: August 29, 2008
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[1] While it is true that several of these cases pre-date the Supreme Court’s decision in Green Tree, they do not pre-date the
authority on which the Supreme Court relied in noting that an order compelling arbitration and staying rather than dismissing the
underlying litigation “would not be appealable.” 531 U.S. at 87 n.2 (citing 9 U.S.C. § 16(b)(1)) (emphasis added). Unlike the
present case, the two cases in which the courts denied mandamus relief from compel-and-stay orders did not involve claims
that enforcement of the arbitration provisions would prevent the plaintiffs from vindicating important statutory rights. See Manion,
255 F.3d 535; McDermott Int’l, Inc., 981 F.2d 744. In Douglas, the Ninth Circuit granted mandamus relief, concluding that a
choice-of-law provision in the arbitration agreement would not allow enforcement of the agreement under circumstances that
the forum state would deem unconscionable. Douglas, 495 F.3d at 1068.
[2] The Texas Legislature, exercising its policy-making role, responded immediately and outlawed such plans. See Tex. Lab.
Code § 406.033(e).
[3] The Society for Human Resource Management Texas State Council submitted an amicus brief supporting Poly-America’s
arguments, arguing that the court of appeals wrongfully failed to compare Luna’s alleged costs with the prospective cost of
litigation. The Texas Trial Lawyers Association likewise submitted an amicus brief supporting Luna, arguing that
unconscionability should be determined by comparing “the general financial condition of the claimant’s peer group” to
estimated arbitration costs.
[4] The Court received briefs from amici curiae the Texas Association of Business and the Society for Human Resource
Management Texas State Council, both of which argue that the court of appeals erred in refusing to sever the provisions it
deemed unconscionable from the remainder of the arbitration agreement. The brief submitted by amicus curiae the Texas Trial
Lawyers Association argues that such severance would be improper.