Nelson v. Watch House International, L.L.C.
2016 U.S. App. LEXIS 3959
| 5th Cir. | 2016Background
- Nelson was hired by Watch House in March 2010 and received an electronic employee handbook containing an Arbitration Plan as a condition of employment.
- The Plan required arbitration of employment-related claims and stated it could be altered by the Company and would be "immediately effective upon notice to Applicant/Employee," with changes applying prospectively.
- Nelson worked for Watch House until March 2014 and alleges coworkers harassed him based on religion and race and that he was terminated about two weeks after reporting racial comments.
- Nelson sued under Title VII and the Texas Labor Code; Watch House moved to compel arbitration under the Plan and the district court granted the motion and dismissed the suit.
- On appeal Nelson argued the Plan was illusory under Texas law (In re Halliburton and progeny) because it lacked a Halliburton-type savings clause requiring advance notice before termination; the Fifth Circuit reviewed de novo and limited its analysis to the illusory-agreement issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Arbitration Plan is illusory under Texas law | Nelson: Plan is illusory because the Company can unilaterally change/terminate the Plan and it becomes immediately effective on notice, with no advance-notice savings clause | Watch House: Plan need only be prospective; advance-notice clause is not required—earlier cases suffice | The Plan is illusory because it lacks a Halliburton-type savings clause requiring advance notice before termination; reversed and remanded |
Key Cases Cited
- In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002) (Halliburton decision establishing that a savings clause with prospective effect and advance notice can prevent illusory arbitration agreements)
- Lizalde v. Vista Quality Markets, 746 F.3d 222 (5th Cir. 2014) (articulates a three‑part test for Halliburton‑type savings clauses: prospective‑only, mutual application, and advance notice)
- Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202 (5th Cir. 2012) (discusses illusory clause doctrine and Halliburton reasoning)
- Sharpe v. AmeriPlan Corp., 769 F.3d 909 (5th Cir. 2014) (applies Halliburton principles; upheld where savings clause included advance notice)
- In re 24R, Inc., 324 S.W.3d 564 (Tex. 2010) (discusses Halliburton and whether a unilateral termination right exists)
- In re Odyssey Healthcare, Inc., 310 S.W.3d 419 (Tex. 2010) (per curiam) (upheld arbitration agreement with prospective effect and advance‑notice window)
- In re AdvancePCS Health, L.P., 172 S.W.3d 603 (Tex. 2005) (per curiam) (recognized sufficiency of savings clause that included advance notice)