The Texas Supreme Court has held that the remedies provided to Texas workers under the Texas Worker's Compensation Act cannot be waived in an arbitration agreement, but declined to hold the arbitration agreement's fee-splitting or discovery limitations unconscionable without further evidentiary support.

In In re Poly-America, L.P., No. 04-1049, 2008 WL 3990993 (Tex. Aug. 29, 2008), Luna was employed by Poly-America. Luna signed an arbitration agreement covering all employment-related claims. Luna later suffered injury on the job and filed a worker's compensation claim. After the injury continued to bother him, Poly-America allegedly terminated his employment.

Luna filed suit for unlawful retaliatory discharge under the Texas Worker's Compensation Act (TWCA). Tex. Lab. Code § 451.001-.003. Luna sought reinstatement, punitive damages, and a declaration that the arbitration agreement was invalid. Poly-America moved to compel arbitration of Luna's claims. The trial court granted the motion to compel. On writ of mandamus to the appellate court, the agreement was found substantively unconscionable as a whole and was declared unenforceable. Poly-America appealed.

The Court first found that the anti-retaliatory provisions of the TWCA – and its specified available remedies – were not waivable by contract because such a waiver would relieve an employer of its obligations under the Act. The TWCA provides for reasonable damages, including actual, future, special, and exemplary or punitive damages, as well as for reinstatement. Tex. Lab. Code § 451.002.

In Poly-America's agreement, remedies were limited to actual damages, which eliminated most remedies available under the TWCA. "Permitting an employer to contractually absolve itself of this statutory remedy would undermine the deterrent purpose of the [TWCA's] anti-retaliation provisions," according to the Court. Allowing a contractual limitation of those remedies would allow an employer to avoid penalties under the TWCA "by conditioning employment upon waiver of the very conditions designed to protect employees."

Accordingly, because holding otherwise would thwart the "clear intent of the legislature" in enacting the TWCA, the Court held the remedies limitation in the agreement unconscionable and unenforceable.

However, the Court declined to find the fee-splitting or discovery provisions in the agreement unconscionable. It noted that both allegations were "speculative" and not supported by evidence at such an early point in the proceedings. Without more specific evidence, and minding the general presumption that equal fee-splitting and discovery limitations are not per se unconscionable, the Court declined to strike these provisions from the agreement.

After severing the remedial limitation from the rest of the agreement, the Court ordered the dispute to arbitration.