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Wednesday, August 27, 2014

Missouri Supreme Court: At-Will Employment Not Sufficient Consideration for Arbitration Agreement

The Supreme Court of Missouri’s primary holding in a 4-3 decision last week in Baker v. Bristol Care, Inc., is that continuing at-will employment does not constitute consideration to make an arbitration agreement enforceable.  This holding may negatively impact some Missouri employers’ ability to enforce current arbitration agreements with their employees.

In that case, Bristol Care, Inc. (“Bristol”) and Baker entered into an agreement to arbitrate employment disputes, which was executed contemporaneously with Baker’s promotion.  The agreement also included certain new terms of employment, including stricter limits on Bristol’s ability to terminate Baker and the offer of severance pay under certain conditions.  However, the Court held that the indefinite duration of Baker’s employment coupled with the company’s right to terminate her without cause compelled the conclusion that her employment remained at will, and therefore, that there was no consideration for the arbitration agreement.

The Court also held that provisions giving Bristol a unilateral right to modify, amend or revoke the arbitration provision made the mutual promises to arbitrate illusory.  These mutual promises were therefore also not sufficient consideration to support the agreement, although the Court suggested that such a provision that applied only prospectively may be acceptable.  The dissent, by contrast, reasoned that the contract, including the arbitration agreement, was supported by consideration because the contract was mutually enforceable, and would have upheld the arbitration agreement on that basis.

Baker follows the trend of recent Missouri appellate cases, which have held that continued at-will employment is not sufficient consideration to support arbitration agreements.  It also delineates certain provisions that may render a mutual agreement to arbitrate employment disputes unenforceable.  The Court’s decision does not currently mean that all agreements to arbitrate employment disputes are unenforceable.  Rather, employers who desire to bind their employees to arbitration of employment disputes must carefully review their arbitration agreements to ensure that they are supported by consideration and otherwise comply with Missouri law.

As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation and should not be relied on as such. Please contact one of our labor and employment lawyers if you have any questions.

This update was prepared by Charles S. Elbert and D. Leo Human.

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