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Unfair Arbitration Clauses in Employee Contracts

Courts Remain Skeptical of Employee Dispute Arbitration Clauses in Missouri

Bowers v. Asbury St. Louis Lex, LLC, et al., —- S.W.3d —-, No. ED102229 (Mo. App. E.D. July 7, 2014).

When an employee has a complaint about wages, discrimination, wrongful termination, or other issues, a valid arbitration agreement may require that the parties submit the dispute to an arbitrator or panel of arbitrators. Employers in Missouri and throughout the country have long relied on such “mandatory arbitration” in order to resolve employee disputes without being subject to the civil court system. Employers and employees generally agree that arbitration tends to be faster, cheaper, and less complicated than proceeding in the civil courts. However, employees often complain that the arbitration process lacks fairness. As such, employees argue that the arbitration agreement presented at the time of their hiring is invalid and therefore not binding. More often than you might expect, the decision of whether to pursue a claim against an employer hinges on whether the employee and his or her attorney is able to defeat, or “knock out,” the arbitration clause. If an employee is able to convince a court that the arbitration agreement is invalid, the agreement is set aside and the employee is allowed to pursue the claim in the civil court system.

One such employee recently succeeded in convincing the trial court that the arbitration agreement he signed was invalid and therefore unenforceable. In Bowers v. Asbury St. Louis Lex, LLC, —- S.W.3d —-, No. ED102229 (Mo. App. E.D. July 7, 2014), an employee filed a lawsuit against his ex-employer alleging that it discriminated against him on the basis of race in violation of the Missouri Human Rights Act. The employer sought to compel binding arbitration pursuant to a purported arbitration agreement signed at the time the Plaintiff, Mr. Bowers, was hired. When the trial court deemed the arbitration invalid and unenforceable, the employer appealed the decision to the Missouri Court of Appeals – Eastern District. On appeal, the court was asked to determine the validity of an arbitration agreement that expressly allows an employer to change the arbitration rules, so long as the employer gives the employee at least thirty days’ notice of the proposed change.

Mr. Bowers argued that the agreement was not supported by consideration because it (1) contained promises by the employee only, and (2) any promises made by the employer were rendered illusory by the employer’s unilateral right to modify the arbitration rules. Citing the Supreme Court of Missouri, the Court of Appeals noted that “[a] promise is illusory when one party retains the unilateral right to amend the agreement and avoid its obligations.” Baker v. Bristol Care, Inc., 450 S.W.3d 770, 776 (Mo. banc 2014). The Court compared the arbitration agreement with that in Baker:

In Baker, the Court held that the employer’s alleged promise to arbitrate was illusory because the arbitration agreement provided that the employer “reserves the right to amend, modify, or revoke this agreement upon thirty (30) days’ prior written notice to the Employee.” Baker, 450 S.W.3d at 773. The Court explained that, because the arbitration agreement did not limit the employer’s “authority to modify the arbitration agreement unilaterally and retroactively,” the arbitration agreement did not preclude the employer “from giving [the plaintiff] prior written notice that, effective in thirty days, [the employer] retroactively is disclaiming a promise made in the arbitration agreement.” Id. at 776-777.

The decision in Bowers v. Asbury St. Louis Lex, LLC, is yet another example of a Missouri court invalidating an illusory arbitration agreement by applying state contract law principles. In finding that the employer’s reservation of their right to modify the arbitration rules rendered their promise to arbitrate illusory, the Court of Appeals’ followed precedent established by the Supreme Court of Missouri. Individuals confronted with the prospect of mandatory arbitration should be aware that there is a line of cases addressing these agreements. In fact, the success or failure of a claim against a previous employer may depend on the attorney’s depth of understanding of this area of law.

Chris Dandurand is an attorney at The Gorny Law Firm in Kansas City, Missouri. He has experience litigating the validity of mandatory arbitration agreements in the consumer products and employment context. If you would like to speak to an attorney about a mandatory arbitration agreement, you can reach him at chris@gornylawfirm.com or 816-756-5056.

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