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Jul 14, 2015

The Eastern District of Missouri continues the trend of invalidating employee-employer arbitration agreements

In Bowers v. Asbury St. Louis Lex, LLC d/b/a Plaza Lexus, et al., the Missouri Court of Appeals for the Eastern District, in a race discrimination lawsuit, issued its latest ruling on employer-employee arbitration agreements. The court held that where an arbitration agreement gave the employer the sole right to modify its arbitration rules upon 30 days’ notice, the promise to arbitrate was illusory. As a result, the employer’s promise to arbitrate did not constitute valid consideration to support the Agreement. 

In Bowers, Plaintiff signed an Agreement to Arbitrate and an Acknowledgement of Arbitration Rules upon being hired. The Arbitration Rules stated that Defendants could change the Rules to “reflect developments in the law and to ensure the continued efficiency of the arbitration process.” If a rule change was made, the Company was required to provide at least 30 days’ notice of the proposed change to all employees. The Rules provided that the employee could opt out of the proposed change, but failure to opt out was deemed acceptance of the change.  Employees were not given the right to modify the Rules. 

Plaintiff filed a Petition against Defendants in August of 2013 alleging race discrimination. Defendants filed a motion to stay the proceedings and compel arbitration requesting that the trial court enforce the Agreement to Arbitrate. The trial court denied Defendants’ motion to stay the proceedings and compel arbitration. Defendants’ appeal followed. 

The Eastern District looked to the Missouri Supreme Court’s 2014 decision in Baker v. Bristol Care, Inc., for guidance. In Baker, the Supreme Court held that the employer’s promise to arbitrate was illusory because the arbitration agreement provided that the employer “reserves the right to amend, modify, or revoke this agreement upon (30) days’ prior written notice to the Employee.” Defendants asserted that Baker was distinguishable because, unlike the employer in Baker, Defendants did not retain the unilateral right to modify the Agreement. However, Defendants did retain the right to modify the Arbitration Rules. In line with the Baker decision, the court held that the Defendants’ right to modify the Rules rendered Defendants’ promise to arbitrate illusory. 

Ultimately, the Bowers decision sends yet another strong message to employers seeking to implement and enforce employee arbitration agreements, that a unilateral right to modify any portion of the arbitration process will be heavily scrutinized and will most likely lead to a finding of lack of consideration, thereby invalidating the arbitration agreement. 

View the full opinion here