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Fifth Circuit: Employment arbitration provision fails because employer can unilaterally amend it without advance notice

A company’s employment handbook contained an agreement to bind­ing arbitration. The handbook also stated that “Any change to this Agree­ment will only be effective upon notice to Applicant/Emp­loyee and shall only apply prospectively.” According to the Fifth Circuit, that wasn’t enough to save the arbitration agreement from being illusory and therefore unenforceable, because the agreement didn’t include the advance notice required for the so-called Halliburton exception. See Watch House Int’l, LLC v. Nelson, No. 15-10531 (5th Cir. Mar. 2, 2016) (reversing and remanding order compelling arbitration).

Drafting lesson:  When drafting an arbitration provision, if you’re going to give one party the right to amend or terminate the arb­i­tra­tion provision unilaterally, then you’d be well-advised to include an advance-notice requirement. This is in addition to making the amendment apply only to new claims (that is, prospectively-only) and apply to the claims of each party, not just the claims of the party that has the bargaining power.

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