In Nelson v. Watch House International, the U.S. Courts of Appeals for the Fifth Circuit found that an arbitration provision found in an employment contract was illusory and thus that the employee was not bound by the clause. The court accordingly found that the employer could not compel arbitration.
The arbitration provision provided in relevant part that the agreement “may not be altered except by consent of the Company and shall be immediately effective upon notice to Applicant/Employee of its terms, regardless of whether it is signed by either Agreeing Party. Any change to this Agreement will only be effective upon notice to Applicant/Employee and shall only apply prospectively.”
The court found that this language failed to include a “savings clause” requiring the arbitration provision to include advance notice of termination (citing to In Re Haliburton Co., 80 S.W.3d 566, Tex. 2002). Thus, concluded the court, the arbitration agreement was illusory and thus the employee was under no obligation to arbitrate.