Another One Bites The Dust: Missouri Court Refuses to Enforce Arbitration Agreement Due to Unilateral and Retroactive Modification Clause

Arbitration agreements have been a roller coaster for Missouri employers. Recently, in State ex rel. Hewitt v. Kerr, the Missouri Supreme Court enforced such an agreement, sending an employee’s discrimination lawsuit to arbitration. But overall, courts in Missouri have restricted the enforceability of arbitration agreements entered into between employees and employers. This month, the Missouri Court of Appeals continued that trend in Bowers v. Asbury St. Louis Lex, LLC, No. ED102229 (July 7, 2015). In Bowers, the court analyzed an arbitration agreement, which included a clause that purportedly allowed the employer to modify the agreement unilaterally and retroactively.

Background

On his first day of work, the employee in Bowers signed an agreement that any dispute between the employee and employer would be subject to arbitration in accordance with the employer’s arbitration rules. Those rules allowed the employer to “change these Rules from time to time,” as long as it gave at least 30 days’ notice of the proposed change. The rules also permitted the employee to opt out of any proposed changes. In addition, the employee signed an acknowledgement of receipt of the rules, which stated that the employer “retains the right to add or change the terms of . . . rules, and all other working conditions without obtaining another person’s consent or agreement.”

After the employee resigned from his position, he filed a discrimination lawsuit against the employer in state court. The employer moved to compel arbitration, citing the agreement signed by the employee. The trial court denied the employer’s motion, and the employer appealed.

The Court’s Analysis

On appeal, the appellate court, like the trial court, also refused to compel arbitration. In doing so, the court closely followed a recent Supreme Court of Missouri decision, Baker v. Bristol Care, Inc., which ruled that an arbitration agreement is invalid if it does not limit the employer’s “authority to modify the arbitration agreement unilaterally and retroactively.”

Applying the rule from Baker, the court in Bowers held that the arbitration agreement was invalid. The court pointed to the language of the arbitration rules and acknowledgement, which expressly allowed the employer to change the rules unilaterally and did not limit the right to make retroactive changes. The court expressed concern that, without such a limitation, the employer could change the arbitration rules in order to avoid an unfavorable ruling in arbitration.

Practical Impact

The Bowers decision is a reminder to exercise caution when preparing arbitration agreements. Clauses that allow employers to unilaterally and retroactively modify an arbitration agreement will render the agreement invalid. As demonstrated in Bowers, courts may look at other documents—such as a handbook, an acknowledgement or receipt, or arbitration rules—to determine whether the agreement is enforceable. Employers should also note that the agreement in Bowers was only signed by the employee—not the employer—a factor that has led other courts to refuse to enforce arbitration agreements.

According to Eric A. Todd, the Managing Shareholder of the St. Louis office of Ogletree Deakins, “Missouri courts continue to closely scrutinize arbitration agreements between employers and employees. Although it is common for agreements to include a modification clause, like the one in Bowers, such provisions can give rise to enforceability issues later on. Employers should review their agreements to make sure they are complying with the recent court decisions on this issue.”