It's time to amend the Texas Constitution to eliminate a harmful limit on the Texas Supreme Court's appellate power.

The Texas Constitution limits the Supreme Court's appellate jurisdiction in an unusual way. It prohibits the Supreme Court's factual sufficiency review of a judgment already reviewed by a court of appeals. In general, this means the Court cannot engage in a complete analysis of the evidence on all sides of a fact-finder's conclusions. This limit is implied by the Constitution's creation of the courts of appeals.  Under Article 5, section 6, "the decision of said courts [of appeals] shall be conclusive on all questions of fact brought before them on appeal or error." The Supreme Court would act beyond its jurisdiction if it reversed a court of appeals on the grounds of factual insufficiency. But the Supreme Court can reverse on grounds of legal sufficiency, which in general involves errors of substantive law or a complete or nearly complete absence of evidence for an essential element of a prevailing claim or defense.

The reason Texans limited the Supreme Court's factual review in its 1891 amendments to the Constitution is unclear. Whatever the reason, this limit on the Court's jurisdiction can cause plenty of harm. First, the line between legal sufficiency and factual sufficiency can be doubtful in some cases, leaving skeptics to wonder whether the Court has overstepped its jurisdiction by declaring legal insufficiency as a pretext for rejecting the factual sufficiency of a judgement it dislikes.  The resulting cynicism and distrust are unhealthy for the Court.

Second, prohibiting the Court's factual sufficiency review can lead to distortions in the development of substantive law. Imagine a case in which the Court is deeply suspicious of a miscarriage of justice but frustrated by a lower court's conclusive findings of fact.  If the Court cannot correct a perceived injustice by factual sufficiency review, it might be tempted to declare a novel substantive rule or novel application of a rule to reverse on legal insufficiency grounds.  But a new substantive rule is not limited to the parties before the Court.  A new substantive rule can affect future cases in ways the Court failed to anticipate. As the old adage goes, "hard cases make bad law."

A recent case in point is McAllen Hospitals, L.P. v. Lopez, where the Court reversed the jury, district court, and unanimous court of appeals in a way that might unsettle contract law for years to come. After McAllen Hospitals nearly anyone who is an "employee" has reason to worry about the enforceability of basic contract rights to compensation and certain benefits, and employers have reason to worry that their arbitration agreements and trade secret provisions are at risk.

If facts in McAllen Hospitals were just as described by the Court, it's not hard to see why the Court might have doubted the factual sufficiency of the jury's verdict.  The plaintiff-employees alleged that the employer orally promised to convert their pay from an hourly rate to a "salary," but the employer thereafter continued for years to pay them an hourly rate. After years of working and receiving hourly-rated wages, the employees sued for the greater amount they would have earned as salaried employees for weeks when they worked less than the number of regular fulltime hours. The jury returned a verdict for the employees for $389,000 for three years of underpayments, or about $32,000 per employee per year.

The facts as summarized by the Court raise many questions. What exactly did the parties mean by "salary" (a seriously vague concept)?    Did the employer promise to convert the employees to salaried status in the future but fail to make the conversion, or did it promise that henceforth all work would be compensated on a salaried basis? When did the employees first have reason to know they were still receiving pay based on an hourly rate and not a salary? Why did they continue to work without objection after being "shorted" in pay for some week? Did they voice any objection at all before filing a lawsuit? Why didn't the parties' conduct over three years establish a custom or practice of compensation, or the basis for waiver or estoppel?

If the facts described by the Court beg so many questions, perhaps it is because the record was factually insufficient to support the claims. If so, and if the Court had the power to reverse on grounds of factual insufficiency, McAllen Hospitals might have remained an inconsequential case of no precedential value.  The exact facts of the case are highly unlikely ever to be repeated.

Instead, the Court reversed on grounds of legal insufficiency, the only thing it could do if it was determined to reverse. One kind of legal insufficiency can resemble factual insufficiency: the Court can reverse on grounds of legal insufficiency if there is no evidence or no more than a scintilla of evidence on some essential element of a plaintiff's claim. But there was more than a scintilla of evidence for the plaintiffs' claims in McAllen Hospitals. Even if the employer's alleged oral promises were deficient in some respect standing alone, they were corroborated by employer-authored documents that appeared to show that the plaintiffs were FLSA (Fair Labor Standards Act) "exempt" salaried employees.

Thus, the Court relied on another prong of legal sufficiency that permits reversal if a substantive law or a rule of evidence bars the evidence for the plaintiff's claim.  In McAllen Hospital, the Court declared an unprecedented rule that allows one party to add a clause to its own documents to prohibit the use of those documents as evidence of the other party's contract claims. To repeat, one party can unilaterally, without bargaining, determine the admissibility of its own documents as evidence against that party by adding some magic language.

To appreciate the reasoning and revolutionary implications of the Court's ruling, it is necessary to begin with a rule the Court did not apply: the parol evidence rule. That rule allows parties to adopt one document to integrate all the terms of their contract and to serve as the exclusive statement of the contract's terms. Integration bars either party from seeking to prove or give effect to a term that might actually have been discussed before the integration but that was left out of the integration. Terms omitted from the integration are implicitly rejected.

Integrating a contract is routine in many types of transactions but nearly impossible in employment relations. In fact, employers routinely do something that will sound strange except to employment lawyers: Employers include anti-integration clauses in any document that might resemble an integration.  For example, an employee handbook typically includes a provision that it is "not a contract." In other words, that document is not the contract—not an integration of the contract, because the parties did not integrate their contract. The reasons for and history of anti-integration clauses in employment are far too complex for this short article. In any event, "no contract" clauses were not, as the Court assumed, designed to render a document inadmissible as evidence by employees or the employer in a dispute over unintegrated terms. Moreover, despite a "no contract" clause in any personnel document, employment is definitely a contractual relationship. An employee, by definition, exchanges work in return for an employer's contractual promise to pay.

If the parties have not integrated their contract and lack even a "partial" integration with respect to an essential term such as the compensation promised for the employee's work, all kinds of evidence are admissible to prove the parties' understanding. For example, an employer-authored handbook that classifies a job as a salaried position would certainly be relevant to the question whether the employee reasonably understood he or she was a salaried employee, barring a complete or partial integration to the contrary.

In McAllen Hospitals, the Court appears to have adopted a dangerous new branch of the parol evidence rule.  According to the Court, a standard "no contract" clause found in nearly any employee handbook and many other employment documents is not just an anti-integration clause. After McAllen Hospitals such a clause also now renders the handbook or other document inadmissible as evidence of an essential term—the pay promised in exchange for work—even if there is no better evidence of what the employer promised.  It is as if the handbook was a parol term omitted from an integration, except that there is no integration. The Court cited no precedent for this rule, and there seems to be none.

Allowing one party, without bargaining and without the adoption of an integration, to unilaterally regulate the admissibility of evidence simply by attaching a "no-contract" clause to its own documents is a rule of substance the Court will likely come to regret.  Employers and other parties who control the drafting of documents affecting their relations with other parties will be encouraged to include a "not a contract" clause in any document that might someday be relevant to a dispute.  The parties authoring such documents will then cite McAllen Hospitals to bar introduction of those documents as evidence of unintegrated terms.

Employee compensation and benefits are particularly vulnerable after McAllen Hospitals because, in the absence of an integration, the parties typically have only a handbook or other employer policy directives to prove the details of the employer's promised consideration for the work. Imagine that a handbook states that employees can have the cash value of earned but unused vacation time and sick leave in the event of involuntary layoff.  If the handbook has a "no-contract" clause but the handbook is the only evidence of the details of the employer's promise, the employer can arbitrarily deny these benefits without contractual liability.  Employee rights to commissions, bonuses, premium pay, disability pay and other fringe benefits are similarly at risk.

Fortunately benefits provided through employee pension or welfare benefit plans are governed by federal law. Federal law will preempt McAllen Hospitals with respect to such benefits. And federal law has nothing like a McAllen Hospitals rule.

There is one reason employers should not aggressively invoke McAllen Hospitals.  Sometimes, employers need those "not a contract" documents to defend against employee claims for compensation or benefits. In McAllen Hospitals, for example, did the employer really prove by legally sufficient evidence that it promised an hourly wage, and not a salary? No, if its proof was based on documents that were "not a contract." Employers might also need their handbooks and other personnel documents to enforce employee promises to protect trade secrets, arbitrate claims, or accept responsibility for employer property.  If those documents are no longer admissible as evidence, employers may be surprised to learn that such employee promises, as a practical matter, are unenforceable.

Would amending the Constitution to allow the Court's factual sufficiency review prevent surprising changes in the law like McAllen Hospitals? Are there reasons to preserve the Constitutional limit on the Court's factual sufficiency review, such as to protect the right to a jury or to limit the Court's interference with regional judicial systems?  Is the Supreme Court as suitable for factual sufficiency review as the courts of appeals? The issue is undoubtedly complex, but it's time to start the discussion.

Richard R. Carlson is a professor of law at South Texas College of Law Houston with expertise in the following areas: employment discrimination, family law, and labor and employment law. Contact him at [email protected].