Arbitration agreements have become a common feature in various contracts, offering an alternative dispute resolution method outside of traditional litigation. However, when it comes to the interplay between arbitration agreements and statutes of limitations, the legal landscape can become intricate. In Texas, as in many other jurisdictions, questions arise regarding whether an arbitration agreement can effectively shorten the statute of limitations for bringing a legal claim. Let’s delve into the nuances of this legal intersection in the Lone Star State.

First, what is an arbitration agreement? An arbitration agreement is a contractual provision that parties enter into to resolve disputes outside of the courtroom. In the employment law world, these provisions are often snuck into the onboarding paperwork. In fact, a majority of the employees that I have represented who are subject to an arbitration provision had no idea that they had signed it. In short, these provision mandate that instead of going to a courtroom to avail yourself of your rights, you will have to engage in a private non-public arbitration. 

Second, what is a Statute of Limitations in Texas? The statute of limitations is a legal timeframe within which a person must initiate legal proceedings. Once this period expires, the claim may be barred, and the aggrieved party loses the right to bring a lawsuit. The statutes of limitations vary depending on the nature of the claim. For example, a Texas Whistleblower claim has a statute of limitations that is only 90 days while a breach of contract claim is generally four years. So there is a wide range of statutes of limitations. 

Can an Arbitration Agreement Shorten the Statute of Limitations in Texas?

In Texas, the enforceability of arbitration agreements and their impact on statutes of limitations has been a subject of legal scrutiny. Generally, arbitration agreements are going to be upheld by Texas courts, in line with the Federal Arbitration Act (FAA) unless you can establish that the agreement is unconscionable or there is some defect in the formation of the contract that contains the arbitration agreement. However, the question of whether an arbitration agreement can effectively shorten the statute of limitations is not a straightforward matter.

A key consideration is whether the shortened statute of limitations in the arbitration agreement is reasonable and not unduly oppressive. Courts may scrutinize such provisions to ensure they do not run afoul of public policy or deprive parties of a fair opportunity to assert their rights.

Moreover, the Texas Supreme Court has held that an arbitration agreement’s incorporation of a shortened limitations period must be clear and unmistakable. This means that the language in the agreement should explicitly express the parties’ intent to reduce the time within which a claim must be filed.

So the answer is an attorney’s favorite response. It depends. But the sheer possibility that your statute of limitations could be shorten should set off alarms in your head because this could easily mean that your case is gone before it even started. 

Practical Implications and Best Practices.

First and foremost, as an employee you must be sure you read everything that you sign. Regardless of whether you believe you will not need to avail yourself in court, it is better to have a forward-looking approach. Moreover, while the possibility exists that a provision shortening your statute of limitations would be unenforceable, it is always better to air on the side of caution. Second, if you do find yourself in a situation where you need to talk to an attorney, do make sure to bring up the fact that there is an arbitration agreement. This will help the attorney do his job better in evaluating your case. 

As can be seen above, the standard of whether an arbitration agreement is enforceable or not is not an easy one to make. That is why it is important to talk to attorneys that specialize in that particular area. Here, at Wiley Walsh, P.C. we specialize in labor and employment law. Feel free to contact us for a consultation.