Missouri Supreme Court Redefines Adequate Consideration for Enforcing Arbitration Agreements
Continued at-will employment is no longer sufficient consideration to enforce arbitration provisions in Missouri. In Baker v. Bristol Care, a recent decision of the Missouri Supreme Court, a slim majority of the Court struck down an employer's arbitration agreement with an at-will employee. In the 4-3 decision, the majority of the Court ruled that the agreement, which was entered into with a current employee when she was promoted from an hourly position to a salaried managerial role, was not supported by adequate consideration. The opinion affirmed a circuit court ruling that refused to require the employee to submit to arbitration of a class-action lawsuit for alleged wage payment violations. The Court refused to enforce the arbitration agreement for two reasons:
- First, the arbitration agreement was entered not as a condition of initial employment or employment for a defined term, but in consideration for continued at-will employment, where the employee could be fired (or quit) at any time for any or no reason. The Court's majority reasoned that continued at-will employment does not provide consideration for the employee's agreement to arbitrate employment disputes. Interestingly, the majority's opinion did not construe the arbitration agreement in conjunction with an employment agreement that the employee also signed when she was promoted. The dissenting opinion of three members of the Court emphasized that the two agreements must be construed together.
- Second, the arbitration agreement provided that the employer could modify or revoke the agreement in its discretion with a mere 30-days' notice. The Court found that such a provision made the employer's promise to arbitrate disputes illusory, as they could change the agreement at any time with a month's notice to the employee.
The dissenting opinion of 3 members of the Court found that a promise to arbitrate need not be supported by separate consideration if made at the same time as other promises which, viewed collectively, were supported by consideration. The minority opinion reasoned that there was sufficient consideration for the parties' exchange of promises, such as the employer's promises related to the employee's new position (reasons and notice for termination, promise of salary, promise to pay advances, promise to pay bonuses if targets met, promise to provide paid vacation and provide living accommodations, among others); and the employee's promises concerning her new role. The minority opinion also explained that the majority appeared to ignore that the agreement to arbitrate disputes was mutual, surely supplying the consideration to make those promises binding. The minority reasoned that the employer's promise to arbitrate was not illusory because it agreed to arbitrate at least for 30 days – the notice period required for changes to the agreement.
This limiting view of adequate consideration may also foreshadow potential challenges of restrictive covenant agreements. Employers utilizing arbitration agreements and agreements in general with employees should carefully review them with counsel in light of the Baker case to analyze whether changes in the agreements or employment practices can be made to ensure the agreements will be enforced.