Missouri Supreme Court Says “Sign-or-Be-Fired” Arbitration Agreement Unenforceable

In the recent case of Baker v. Bristol Care, Inc., the Missouri Supreme Court decided the issue of whether an employer can enforce an arbitration agreement that is presented to an employee as a non-negotiable requirement of their employment. In that case, the Court held that continued employment and added benefits are insufficient consideration for enforcing an arbitration agreement between an employer and employee after a promotion. In other words, if presented in a “sign this or be fired” context, an arbitration agreement is not enforceable under Missouri law.

When the Plaintiff, Carla Baker, was promoted to a managerial position at Bristol Care, she was required to sign an arbitration agreement in addition to an employment agreement. The arbitration agreement required both Bristol Care and Baker to resolve disputes between them through arbitration rather than in court. In addition, the arbitration agreement allowed Bristol Care to terminate Baker’s employment at any time with five days’ pay, making her an at-will employee, and reserved the right to amend, modify, or revoke the arbitration agreement upon thirty days’ prior notice. Both parties signed the agreement and Baker went forward with her promotion. Later, after Bristol Care terminated Baker’s employment, she filed a class-action lawsuit in court alleging that she and similarly-situated employees were not paid for overtime hours. As part of its defense of the lawsuit, Bristol Care asked the court to enforce the arbitration agreement, but the trial court refused. The case was eventually appealed to the Missouri Supreme Court, where the court refused to compel arbitration, holding the employer had not provided sufficient consideration to form a binding contract.

In its decision, the Court addressed several issues concerning arbitration agreements. To begin, the court addressed who had authority to hear and decide whether the parties had formed a valid contract. The court found that explicit, precise language within an arbitration agreement, such as “the arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of the agreement” gave exclusive authority to the arbitrator. Absent that critical language, the court was the right forum to decide whether the parties had formed a valid contract. The case remained in the court because the arbitration agreement did not delegate authority to an arbitrator.

Next, the court analyzed the issue of whether the purported agreement was supported by valid consideration. Consideration refers to a thing of value in exchange for a promise. The Court stated that an employee who continues to work at-will after their promotion does not provide additional consideration. Further, the Court held that continued at-will employment and additional benefits are insufficient consideration to form a contract. In reaching this conclusion, the Court relied on the notion that an offer of continued at-will employment is not valid consideration because the employer makes no legally enforceable promise to do or refrain from doing anything it is not already committed to do, and the employer can still terminate the employee immediately for any reason.

The court also found that the employer’s promise to arbitrate disputes was insufficient consideration, because it was possible for the employer to modify the arbitration agreement unilaterally and retroactively. Where there is a lack of mutuality between the parties, a court will not enforce the contract. Bristol and Baker will now be required to litigate this lawsuit in court, as the arbitration agreement between the parties was held to be unenforceable.

This case may also have importance with respect to other types of employment-related agreements, such as non-compete agreements. Up to this point, Missouri courts have held that continued employment is sufficient consideration to enforce a non-compete agreement. However, in light of the Missouri Supreme Court’s decision in the Baker case, it remains to be seen whether the Missouri Supreme Court would extend its holding in Baker to non-compete agreements and conclude that such agreements are not adequately supported merely by an employer’s promise of continued employment.