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Arbitrate or litigate?

The validity of arbitration agreements continues to be the subject of litigation in Kansas and Missouri. The U.S. Supreme Court’s decision to uphold class action waivers in arbitration agreements between employers and employees is one of many other issues raised in recent employment arbitration cases.

In October, a federal court in Kansas considered whether an enforceable arbitration agreement existed when the employee didn’t sign the arbitration agreement. In Kansas, an employee continuing to work after receiving notice of an employer’s arbitration policy is generally considered the same as an employee who has accepted the terms of the arbitration policy. In the most recent case, the employer sent multiple emails to the employee’s work email informing her of her right to opt out of arbitration. The employee didn’t deny receiving the emails and didn’t opt out of the agreement. The court initially noted that, if accepted, the agreement would be valid because it required both the employer and employee to arbitrate any disputes. In contrast, an agreement that requires the employee to arbitrate but makes arbitration optional for the employer isn’t enforceable. The key issue in this case was whether an employee failing to opt out may be deemed to have accepted mandatory arbitration. The court found that even if the employee didn’t read any of the emails, the employer provided adequate notice, and the employee had a meaningful opportunity to reject the offer of arbitration. Thus, by failing to opt out, the employee bound herself to arbitrate her discrimination and retaliation claims. Bolden v. AT&T Services, Inc., No. 18-2306 (D. Kan. Oct. 10, 2018). 

Another federal judge in Kansas recently compelled arbitration in a wrongful termination case. In that case, the employee signed an arbitration agreement when she started work in 2000, but her original employer merged with a different company in 2008. The court determined that under the terms of that particular agreement, the employer could enforce the agreement even though it wasn’t part of the original agreement, because the agreement applied to the original employer and its “successors and assigns,” meaning any company that took over for it. Once the court decided that a valid agreement existed between the parties, the court deferred to the arbitrator to decide whether other provisions of the agreement were enforceable. Weishaar v. Wells Fargo Bank, N.A., No. 18-2188 (D. Kan. Aug. 31, 2018).
Meanwhile in Missouri, the Missouri Court of Appeals shot down an arbitration agreement as unenforceable for lack of consideration. In that case, the employer argued that two sources of consideration made the agreement valid, but the court rejected both. First, under Missouri law, an employer offering continued at-will employment isn’t enough by itself to make an arbitration agreement enforceable. This particular agreement provided that employment was for a two-week period that automatically renewed every two weeks, which the court determined was legally the same as at-will employment. Second, the court determined that another “craftily drafted” provision allowing either party to seek a restraining order failed to show a mutual promise binding both parties, because the court was “unable to fathom a situation” where an employee would actually seek a restraining order instead of money damages. Thus, the provision was illusory and the agreement unenforceable. Caldwell v. Unifirst Corp., No. ED 106237 (Mo. App. Sept. 25, 2018).
A week before, the Missouri Supreme Court heard oral arguments in three other cases involving employment arbitration agreements. One issue the Missouri Supreme Court will resolve is whether the court or the arbitrator should decide whether a valid arbitration agreement exists. In Caldwell, the court reached a different result than a previous Court of Appeals panel on the same issue. In Kansas, the newly adopted Revised Uniform Arbitration Act answers the question in favor of the court deciding this threshold issue.
Take away
Generally, Missouri courts are more skeptical of arbitration agreements than Kansas courts. Even the most carefully drafted agreements may be deemed unenforceable if the required components of a contract are not based in practical reality. In both states, an arbitration agreement must bind both parties to arbitration equally, and the employee must have notice and an opportunity to reject it before an arbitration agreement will be considered enforceable. If your company is considering using arbitration agreements, the best course is to consult an employment law attorney to make sure the agreement will be enforceable in your state.

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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
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Jason Lacey, the Employee Benefits Guy
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