Missouri Courts Scrutinize Employment Arbitration Agreements

Demonstrating once again that Missouri may be the most difficult state in which to enforce an employment arbitration provision, the Missouri Supreme Court in Baker v. Bristol Care, Inc., et al.1 invalidated an employment arbitration agreement that was agreed to by the parties at the time the employee was given a promotion and raise. The court held that continued employment for an at-will employee and mutual promises to arbitrate where the employer had the ability to modify the terms of the arbitration agreement did not constitute valid consideration to support the agreement. The Baker decision demonstrates Missouri courts' reluctance to enforce employment arbitration agreements. A review of the Baker decision and prior intermediate appellate decisions provides guidance on what an employer must do to have a valid and enforceable arbitration agreement in Missouri.

The Missouri Supreme Court's Decision in Baker

In Baker, an employee signed both an employment agreement and an arbitration agreement at the time she was promoted and given a raise. The employment agreement and the arbitration agreement contained mandatory arbitration provisions, but the court read both agreements as one since both agreements were executed contemporaneously.

The employment agreement indicated that employment would "continue indefinitely," but gave the employee and employer options on terminating the employment agreement. The court held that the employee was an at-will employee since the employment did not contain a definite duration of employment. The court also held that continued at-will employment is not valid consideration for an enforceable contract, and thus would be insufficient to support an agreement to arbitrate.2

The arbitration agreement, as well as the employment agreement, contained a mutual agreement that all legal claims the parties have against one another would be resolved through binding arbitration. The arbitration agreement also provided that the employer "reserves the right to amend, modify or revoke this agreement upon thirty (30) days' prior written notice to the Employee." The court held that this provision allows the employer to change the agreement to arbitrate unilaterally and retroactively, and therefore, the employer's agreement to arbitrate is illusory and does not constitute consideration.

Additionally, the employer argued that the employment agreement contained a delegation clause under which the arbitrator has "exclusive authority to resolve any dispute to the applicability or enforceability" of the arbitration agreement. However, the court stated that the question presented to it was whether a valid arbitration agreement was formed, and the issue of contract formation was an issue for determination by Missouri courts. The court distinguished Rent-A-Center, Inc. v. Jackson, 130 S.Ct. 2772 (2010) because the arbitration provision in that case provided the arbitrator with the exclusive authority relating to the "interpretation, applicability, enforceability or formation" of the arbitration agreement. Thus, the court held that it was responsible for determining whether an agreement to arbitrate was formed, not an arbitrator.

The court's holding that a valid arbitration was never formed because there was no consideration is in line with prior Missouri appellate decisions invalidating employment arbitration agreements.

Prior Missouri Decisions Invalidating Arbitration Provisions

In a series of appellate decisions prior to Baker, Missouri courts had consistently invalidated employers' arbitration agreements and provisions because of lack of acceptance, failure of consideration, and unconscionability. The arbitration provisions challenged in these cases were in employment agreements, separate arbitration agreements, and handbooks.

In Morrow v. Hallmark Cards, Inc.,3 the employer had a multi-tiered Dispute Resolution Program (DRP) that required binding arbitration of the employees' claims at its last stage. The employer informed employees that by continuing employment, the employee consented to the terms of the DRP. Employees were not required to sign the DRP. The "covered claims" under the DRP were only those claims employees had against the employer. The DRP excluded certain claims such as non-competition agreements or claims involving intellectual property.

An employee brought a lawsuit claiming age discrimination, which was a "covered claim." The trial court and the arbitrator held there was a valid contract to arbitrate. The employee contended that no contract to arbitrate existed, thus she could not be compelled to arbitrate.

The Missouri Court of Appeals held that no enforceable agreement existed. The lack of a signature by the employee did not support the existence of an arbitration agreement. Additionally, the lack of mutual promises by the parties to arbitrate the claims that the parties may have against the other was a consideration in determining that an enforceable agreement did not exist. The court of appeals noted that the employer's...