From the East to the West, Does Arbitration in Missouri Reign Best? Missouri Courts Uphold and Invalidate Arbitration Agreements
ABSTRACT: Missouri has continued to hold that arbitration agreements are not unconscionable when they are shown to have valid mutual assent and are not self-serving.
This past May, the Missouri Supreme Court, Missouri Court of Appeals, and both United States District Courts in Missouri analyzed the validity and enforceability of arbitration provisions. Three key concepts have emerged from these recent decisions:
(1) A challenge to the delegation clause in an arbitration agreement (one that says the arbitrator gets to decide who decides whether the dispute is fit for arbitration) must be pleaded separately from a challenge to the contract
(2) Incorporation of the AAA rules in an arbitration agreement generally constitutes clear and unmistakable evidence of the parties’ intention to arbitrate.
(3) Under long-standing Missouri law, an employee’s continued employment, without more, does not in and of itself constitute adequate consideration for an agreement to arbitrate.
Consideration for the Entire Contract is Separate from Consideration for the Delegation Provision
Newberry v. Jackson, 2019 WL 2181859 (Mo. banc. 2019)
The Missouri Supreme Court affirmed, en banc, the circuit court’s motion to compel arbitration and stay court proceedings. Employees brought discrimination and retaliation claims against their former employer, Dollar General. The employer responded with Motions to Compel Arbitration and Stay Further Proceedings, to which the employees responded that there was no consideration for the arbitration agreements. More specifically, the employees claimed that the delegation provisions were unconscionable and there was no clear and unmistakable evidence of the parties’ intent to incorporate them. Although the employees admitted to signing the documents and knew they would be bound to arbitration, they did not necessarily understand the documents. Nevertheless, the circuit court sustained the motions to compel arbitration and stay the proceedings under the Missouri Supreme Court’s Pinkerton decision (which upheld a delegation clause in an arbitration agreement), and alternatively held the arbitration agreements valid because they were not unconscionable on their face and supported by consideration by mutuality of enforcement and continued at-will employment.
The Missouri Supreme Court accepted the case for review, and affirmed its earlier Pinkerton decision, which it found to be consistent with the U.S. Supreme Court decision in Rent-A-Ctr v. Jackson. The court found the employee’s allegations of unconscionability to be inadequate because they challenged the entire contract—not the delegation provision, specifically. Under Rent-A-Center, the “delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact it is contained in an arbitration contract that the party also contends is invalid.” The court found that because the lack of consideration that the employees assert is the same lack of consideration they claim should invalidate the overall arbitration agreements, “they do not raise a unique challenge to the delegation clauses. Accordingly, the delegation provisions are valid,” and the employer “did not have a burden in the circuit court to show legally sufficient consideration.”
Incorporation of AAA Rules Is Clear and Unmistakable Evidence of Intent to Arbitrate
Hughes v. Ancestry.com, 2019 WL 2260666 (Mo. App. Ct. W.D. May 28, 2019) (not officially published)
Although Missouri state courts have consistently held that continued at-will employment alone does not constitute consideration for an arbitration agreement, they continue to hold that the incorporation of the AAA rules in an arbitration agreement shows clear and unmistakable evidence of intent to arbitrate. In this consumer action, the Missouri Court of Appeals for the Western District reversed the trial court’s denial of a motion to compel arbitration. Consumers brought an action against Ancestry.com for allegedly releasing their private health information to third parties without their expressed permission. The company responded with a Motion to Compel Arbitration and Stay Litigation which was subsequently denied by the circuit court. The Court of Appeals reversed and remanded because the consumers failed to separately contest the validity of the delegation provision.
The court reviewed the case de novo because arbitrability is a matter of contractual interpretation, which is a question of law. The court had to first determine whether the parties’ agreement contained a provision that clearly and unmistakably delegated threshold issues of arbitrability to the arbitrator. The provision in the agreement incorporated the AAA rules, which has been held to constitute clear and unmistakable evidence of the parties’ intent to arbitrate. The court then had to determine the validity of the provision. The Missouri Court of Appeals also reasoned that under Rent-A-Center, the validity of the delegation provision must be challenged separately from a challenge against the agreement, as a whole.
Hobby Lobby Stores, Inc. v. Bachman, 2019 WL 2331006 (E.D. Mo. May 23, 2019)
In this employment discrimination case, the United States District Court of Missouri for the Eastern District had to determine if the Mutual Arbitration Agreement was valid and enforceable in order to grant the employer’s Petition to Compel Arbitration. For the reasons discussed above, the court held that because the Mutual Arbitration Agreement incorporated the AAA rules and the employees had not challenged the delegation provision specifically, the agreement was, indeed, enforceable.
Continued At-Will Employment and Presentation of Agreement Does Not Manifest Mutual Assent
Wilbur v. Securitas Security Services USA, Inc. 2019 WL 1980703 (W.D. Mo. May 3, 2019)
In this employment discrimination case, the United States District Court for the Western District of Missouri had to determine if there was a valid arbitration agreement and if the dispute fell within the terms of the agreement. As the party seeking to compel arbitration, the employer bore the burden of proving the existence of the valid and enforceable arbitration agreement. The “Dispute Resolution Agreement Acknowledgment” stated, inter alia, that all claims against the parties must be solved by Arbitration instead of in a court of law. The employee signed and printed his name; however, the lines for the employer representative signature and printed name were left blank. The employer argued that even though the agreement lacked their signature, the presentation of the agreement, the employee’s acceptance of the agreement, and their continued employment provided adequate consideration and gave rise to mutual assent. The court cited Missouri state court precedent, in Baier v. Darden Restaurants, in holding that an “acknowledgment” of this type was not adequate evidence of mutual assent to arbitrate, and that continued employment, without more, did not constitute adequate legal consideration for an agreement to arbitrate.
Missouri has continued to hold that incorporation of the AAA Rules is clear and unmistakable evidence of the parties’ intent to engage in arbitration. When challenging arbitration, the delegation provision must be challenged separately from a challenge to the whole contract. Presentation of an arbitration agreement to an employee, the employee’s acknowledgement of receipt, and the employee’s continued at-will employment are not enough to form an enforceable arbitration agreement. An employer should always obtain the employee’s expressed assent - i.e., a signature agreeing to the terms of the arbitration provision, and not merely acknowledging its receipt. Additionally, an employer should always specifically express its agreement in order to avoid a mutual assent challenge.
* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a rising 3L student at the University of Missouri-Columbia.