Missouri Supreme Court “Calls an Audible,” Upholds Arbitration Agreement

In recent years, Missouri courts have seemed reluctant to enforce arbitration agreements entered into between employers and employees. But in a recent decision, the Missouri Supreme Court reversed that trend and compelled arbitration of an employee’s age-discrimination claim. The court’s opinion offers some important guidance for employers that want to prepare enforceable arbitration agreements in Missouri. State ex rel. Hewitt v. Kerr, No. SC93846 (April 28, 2015).

Background

For more than 40 years, Todd Hewitt was an employee of the Rams professional football team, eventually being promoted to equipment manager. In 2008, Hewitt and the Rams signed a two-year agreement that contained an arbitration clause:

The Rams and Hewitt also severally and mutually promise and agree that in any dispute which may arise between them, the matter in dispute shall be referred to the Commissioner of the National Football League for decision and after due notice and hearing, at which both parties may appear, the decision of said Commissioner shall be final, binding, conclusive and unappealable.

The Missouri Supreme Court’s opinion did not state whether Hewitt was an at-will employee or had some heightened job protection under the agreement—a fact that has been significant in other recent cases pertaining to the enforceability of arbitration agreements.

After learning that his contract would not be renewed, Hewitt filed a discrimination claim in a Missouri state court against his employer and three affiliated companies. The employer moved to compel arbitration, citing the agreement above. Hewitt opposed arbitration, arguing that the agreement was invalid or unenforceable.

The Missouri Supreme Court’s Decision

In a split decision, the Missouri Supreme Court enforced the agreement and sent Hewitt’s claim to arbitration. Hewitt raised a number of arguments which, in other cases, have been successfully used to avoid arbitration and keep a lawsuit in court. In rejecting those arguments, the court’s reasoning offered some practical guidance on how to draft—and ensure the enforceability of—an arbitration agreement in Missouri. Here are six key factors that the state supreme court considered significant in finding in favor of enforceability of the agreement.

1. The agreement was supported by consideration.

Several Missouri court decisions, namely Jimenez v. Cintas Corporation and Baker v. Bristol Care, Inc., have invalidated arbitration agreements for lack of “consideration”—a legal requirement that is necessary in every contract. In Hewitt, however, the court reached the opposite conclusion. The court recognized that both parties had agreed to arbitrate all disputes, both parties had signed the agreement, and both parties were bound by the terms of the agreement. The court held that these mutual obligations provided sufficient consideration to give rise to a valid agreement to arbitrate.

2. The agreement was not procedurally unconscionable.

Hewitt had argued that the agreement was unconscionable because it was presented to him “in a hurried way” and without any discussion of its terms. This argument also failed to persuade the court. The mere disparity in bargaining power between the employee and employer was insufficient to void the agreement, and the employee did not allege that he had been “coerced” or “defrauded” in agreeing to the arbitration clause.

3. The agreement was enforceable even though it failed to include essential terms.

Hewitt contended that the sparsely worded arbitration agreement had failed to incorporate the procedural guidelines for arbitration. How would the arbitrator be selected? How expansive was the arbitrator’s authority? Who would pay the arbitrator’s fees and expenses? The agreement did not answer these questions. The court explained that when an arbitration agreement is “silent” as to necessary matters or contains “unconscionable” provisions, the agreement will automatically incorporate the terms that are set forth in Missouri’s Uniform Arbitration Act (MUAA). Accordingly, even though the arbitration agreement had been silent as to essential terms, this was insufficient to render it invalid.

4. The agreement was enforceable even though the NFL commissioner was designated as the arbitrator—but it needed to be modified.

Hewitt argued that the arbitration agreement was unconscionable because it designated the National Football League (NFL) commissioner as the arbitrator. The commissioner, Hewitt argued, would inevitably be biased in favor of NFL teams given that their owners select the commissioner for his position and set his compensation. The court agreed with Hewitt, but held that this was not a basis to void the entire agreement. Since the MUAA provides for the substitution of a new arbitrator when the designated arbitrator is disqualified, the court ordered the parties to arbitration but ruled that a new arbitrator should be selected.

5. The agreement waived the employee’s right to bring a statutory claim.

Having failed to persuade the court that the agreement was invalid, Hewitt next argued that his discrimination claim was not covered by the agreement. Hewitt pointed out that the agreement only said that “any dispute” would be “referred to the Commissioner . . . for decision . . .” Hewitt argued that this language was vague and did not waive his right to bring a discrimination claim in court. Once again, the court disagreed: “‘Any dispute’ plainly means any dispute, including Mr. Hewitt’s statutory claims under the MHRA” (emphasis added).

6. The agreement was enforceable by the defendants who did not sign it.

Finally, Hewitt argued that even if the arbitration agreement was enforceable by his employer (who signed it) it could not be enforced by the other defendants (who were not parties to it and did not sign it). The court rejected this argument, allowing all of the defendants to enforce the arbitration agreement even though their signatures did not appear in the contract. The court reasoned that Hewitt had made no differentiation between the signatory and non-signatory defendants in his petition, instead claiming that they were all jointly responsible for the same acts of discrimination. Under these circumstances, the court concluded, all of the defendants could require Hewitt to arbitrate his claims against them.

Practical Impact

According to Eric A. Todd, managing shareholder of the St. Louis office of Ogletree Deakins, “The Missouri Supreme Court’s recent decision is an important reminder that, to be valid and enforceable in Missouri, an arbitration agreement must be carefully drafted and executed. Employers should review their arbitration agreements to ensure that they are consistent with the court’s guidance.”