Even though an employee did not remember signing an arbitration agreement and was under the influence of a morphine drip, The Fourteenth District Court of Appeals of Texas recently enforced an arbitration agreement set forth in an employer’s health and safety plan because the employee ratified the agreement by accepting its benefits.

In Mission Petroleum Carriers, Inc. v. Kelly, the employer’s representative visited an employee in the hospital while he was on a morphine drip after the employee was seriously injured in an 18-wheeler accident while on the job. The employer’s representative arrived in the employee’s room with paperwork for the employee to sign. The paperwork sought the employee’s authorization to participate in the employer’s health and safety insurance plan. As part of the paper work permitting him to participate in the plan, the employee signed the insurance plan and an arbitration agreement.

Shortly thereafter, the employee received benefits under the health and safety insurance plan. Several months later, the employee filed a negligence suit against the employer. The employer filed a motion to compel arbitration and to stay the proceedings. The employee opposed the arbitration agreement and asserted the contract was procedurally unconscionable because he was under the influence of pain medication and did not remember meeting the employer representative or signing the arbitration agreement.

According to the employee’s wife, she spent every day with her husband while he was in the hospital. She testified that the employer’s representative visited the hospital twice and insisted the employee sign. Additionally, she stated that the representative did not explain the contents of the documents other than saying it was for benefits. Moreover, the wife stated that the representative returned to the hospital a few days later, brought more documents to sign and that the representative stated that the employee must sign the paperwork to receive health benefits. The employee’s wife averred that the representative never stated that the employee was signing an arbitration agreement. Lastly, the wife claimed that the representative even held the paperwork for the employee, held the pen in his hand, and helped him sign the papers.

At the evidentiary hearing, the employer presented a Transaction Report and Payment Detail showing that the employee directly and indirectly received benefits from the health and safety plan. According to the employer, as of the day before the hearing, the employer paid plan benefits directly or indirectly on behalf of the employee in excess of $88,000. Included in the amount was $29,500 paid to the employee or on his behalf since the suit was filed. The amount included $935 weekly payments to the employee continuing up to the day of the hearing. The trial court denied the employer’s motion to compel. The employer timely filed its appeal.

The Court of Appeals held that the trial court abused its discretion by denying the employer’s motion to compel arbitration because the employee ratified the arbitration agreement by receiving benefits under the plan after he retained an attorney and filed suit against the employer. Evidence showed that the employee continued to receive plan benefits after the employer filed its motion to compel arbitration, and there was no indication that the employee returned any of the payments made to him or on his behalf. In its decision, The Court stated it critically focused on the actions taken by the employee seeking to avoid a contract after he became aware of its existence.

This arbitration agreement would most certainly have been held unconscionable and invalid. However, the employer did not assert the agreement’s validity but rather that the employee ratified the otherwise unenforceable agreement by accepting its benefits. The employer presented evidence proving the employee received benefits in excess of $88,000 since his injury and after he retained an attorney and filed suit. The employee never returned payments made to him or on his behalf after the employer sought to enforce the arbitration agreement. Thus, the Court determined that the employee cannot avoid the agreement because he accepted benefits after he learned the agreement was invalid.

What Does This Mean for Business Owners

In business language, “Court of Appeals” means potentially huge sums spent on legal fees and significant time spent in either a courtroom or attorney’s office or both. Cases with damaging facts can open the door to unnecessary lawsuits but this situation often can be avoided or largely mitigated.

The employer in Mission was able to avoid serious consequences because of the employee’s own actions. Thus, it is important for the employer to acquire signatures at that time the company rolls out its benefit plan. One way to increase the enforceability of your contracts is to hold a meeting and explain what the agreements are and have employees acknowledge what they are agreeing to. This will help ensure all employees are present, accounted for and understand the contract’s contents. A few minutes in a conference room could save you time and thousands of dollars later.

Whether you are formulating an employment benefit plan or you are already engaged in litigation, Owen & Fazio can help. Contact us today at (214) 891-5960 to learn how our experienced attorneys can help protect your interests.

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