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Arbitration vs. job debated in Supreme Court

What is a job worth?

So far, the answer from Missouri courts is: not enough to enforce an arbitration contract, at least if the employee is at-will. Now a series of cases pending this fall in the Missouri Supreme Court could test how far that principle goes.

The high court on Sept. 18 heard several cases that consider the validity of arbitration contracts as a condition of at-will employment. Easter Seals Midwest is seeking to arbitrate a discrimination claim made by a former employee, though a judge in St. Charles County refused to compel arbitration. The employee, Lewis Soars, had signed the document when he was hired.

Meanwhile, Dolgencorp, the parent company of Dollar General, is defending a Laclede County judge’s order that two discrimination claims by former store managers be resolved by an arbitrator. Jesse Newberry and Becky Lowrance had been employed for several years before the arbitration agreement popped up on the screens of their work computers and required them to enter an electronic signature.

Last year, the Missouri Supreme Court ruled that it was valid for an arbitration agreement to allow the arbitrator, rather than a court, to determine whether a claim was subject to arbitration or not. But that case, State ex rel. Pinkerton v. Fahnestock, involved a student who had attempted to sue his former trade school regarding his education.

In the cases now before the Supreme Court, the plaintiffs had signed the arbitration agreements as a condition of employment. As one attorney put it memorably in a brief, their choice was “sign the agreement or starve.” But a series of Missouri cases has held that an at-will job, from which the employee can be fired for any or no reason, doesn’t count as valid consideration for a contract.

Judge Laura Denvir Stith had dissented from the Pinkerton case, saying it was unfair to hold an unsophisticated consumer to the arbitration agreement that incorporated American Arbitration Association rules by reference. But at least in that case and others like it, she noted during the Sept. 18 oral arguments, the consumer was getting an education, buying a product or receiving some other tangible form of consideration.

In cases involving employment claims, “there’s nothing they’re getting except at-will employment — which is nothing, our cases have said,” Stith said. Under those precedents, it’s not clear that the arbitration agreement — including the provision purporting to delegate threshold issues of arbitrability to the arbitrator — is valid at all.

“How can you multiply nothing?” Stith said. “You can’t add anything to that.”

Charles Reis of Littler Mendelson in St. Louis, an attorney for Easter Seals, said he was making “no contention that at-will employment is consideration for this arbitration agreement.” Instead, he argued, the employer and the employee had made a “mutual agreement” to let the arbitrator decide what was to be arbitrated — and that such an agreement was separate from the underlying arbitration contract.

Rene Duckworth of Ogletree Deakins in St. Louis, an attorney for Dollar General, made a similar argument, saying the company and the employees each had bound themselves to the contract’s terms.

“It’s both sides giving up something of value to themselves in entering into this agreement,” she said.

Attorneys for the plaintiffs, however, denied that there was any such agreement. Bret Kleefuss of the Law Offices of Derald L. Gab in St. Louis, who argued for the former Easter Seals employee, said the contract was essentially unilateral. It allows the parties to bring claims for injunctive relief in court. Kleefuss said such an exemption is of value only to the employer, as it goes “beyond even a law-school hypothetical” to expect an employee to seek to enjoin his company from doing something.

“They haven’t actually agreed to delegate anything to the arbitrator, whereas my client apparently has agreed to delegate everything,” Kleefuss said. (Reis later argued that an employee might well file an injunction to prevent the disclosure of, for instance, medical records.)

Kirk Rahm of Rahm, Rahm & McVay in Warrensburg, an attorney for the former Dollar General managers, agreed that his clients received nothing of value from the arbitration agreements, other than not having been immediately fired.

“They’re simply forced to do this if they want to continue their employment, and that’s not consideration,” Rahm said.

The idea that at-will employment doesn’t constitute the requisite consideration to form a contract dates at least to a 2008 case in the Western District Court of Appeals, Morrow v. Hallmark Cards Inc. That case involved an employee’s continued employment. In 2015, in Jimenez v. Cintas Corp., the Eastern District issued a similar holding regarding an initial offer of employment. The Eastern District recently reiterated its holding in Jimenez in a Sept. 25 ruling, Caldwell v. Unifirst Corporation.in-house-arbitration-judge-howard-sachs

The Jimenez case, however, drew disagreement from one of the three judges on the panel. Judge Kurt S. Odenwald argued that it was one thing for an employer to demand that a current employee agree to arbitration as a condition of keeping a job from which the employee still could be fired at any time without cause. It was another thing to say that an employer, who “affirmatively did something it was not legally obligated to do” by offering the person a job, couldn’t demand that the employer agree to arbitration.

In 2017, the Southern District agreed with the Jimenez majority, again prompting skepticism from one of its members. In Wilder v. John Youngblood Motors Inc., Judge Daniel E. Scott wrote that declaring the benefits of employment as “of no worth when they grow out of a voluntary relationship is to misunderstand the value of gainful employment.”

“Missouri and its communities spend millions incenting employers to create at-will jobs,” Scott wrote. “It is basic economics that Wilder valued the at-will job she sought and accepted more than any rights she gave up under the arbitration agreement.”

The arguments within the state appellate court recently caught the attention of a federal judge. In a July 18 order in Johnson v. C.H. Robinson Company, Senior U.S. District Judge Howard F. Sachs examined an arbitration contract governed by Minnesota law, though the job was based in Missouri. The choice-of-law provision couldn’t have been considered if the arbitration agreement were held to be invalid for having only offered the plaintiff a job.

But Sachs, noting precedent within the Kansas City-based federal court as well as the fact that Missouri’s judges “appear to be divided,” said the contract was valid.

“There may be other good reasons to deny arbitration, but the lack of consideration argument is not very persuasive, at least to me,” Sachs wrote.

It’s not clear if the Missouri Supreme Court will reconsider the appellate districts’ rulings about employment as valid consideration, though some members of the court seemed skeptical. Chief Justice Zel M. Fischer suggested such a position puts Missouri in the minority among the states.

While Reis did not ask the court to change the law, he did urge it to uphold Easter Seals’ agreement. If it couldn’t stand, he said, “There is not an employment arbitration agreement that can stand.”

The cases in the Supreme Court are Soars v. Easter Seals Midwest, SC97018, State ex rel. Newberry v. Jackson, SC96985, and State ex rel. Lowrance v. Jackson, SC96986.