When arbitration agreement provisions time travel: illusory promises and continued at-will employment in Baker.

• Author: Byrd, Richard C.

Baker v. Bristol Care, Inc., 450 S.W.3d 770 (Mo. 2014) (en banc).

1. INTRODUCTION

   Left unrestrained, Baker v. Bristol Care (1) may quietly revolutionize Missouri law regarding employment agreements of many kinds. Baker is a recent Supreme Court of Missouri case favoring an employee's position for denial of an employer's motion to compel arbitration pursuant to a purported employment and arbitration agreement. The court considered the agreement in question to be unsupported by consideration, as neither continued at-will employment, nor an illusory promise to arbitrate on the part of the employer, were found to be adequate consideration. Of particular note was the court's fatal interpretation of a provision of the purported agreement. This provision would have given the employer, with 30-days' notice to the employee, unilateral power to amend or revoke at least the arbitration portion of the parties' purported agreement. The court interpreted this provision as granting retroactive, and not merely prospective, authority to the employer.

   This case is an important development of Missouri employer-employee contract law following the 2008 case of Morrow v. Hallmark Cards, Inc. (2) It heals an apparent rift between Missouri's law on this matter and the federal courts' interpretation thereof. Depending on other courts' use of the decision in the future, Baker may have sweeping effects on all agreements--not merely arbitration agreements--between at-will employees and employers in the future. These implications, and how employers and employees might act to create arbitration agreements in light of Baker, will be explored below.

   First, this Note discusses the particular facts of the Baker case, including its procedural history and holding. Then, the history of salient cases and law is covered in three main areas related to Baker, specifically the concept of arbitrability, at-will employment's status as effective consideration, and when courts find promises to be illusory. Following that, this Note summarizes the court's decision in Baker and its lengthy and thorough dissent. Finally, this note discusses the significance of this case in relation to both the history of the topics involved and their application going forward.

2. FACTS AND HOLDING

   The parties involved in Baker v. Bristol Care, Inc. were appellants David Furnell ("Furnell") and Bristol Care, Inc. d/b/a Bristol Manor ("Bristol") and respondent Carla Baker ("Baker"). (3) Baker was a former employee of Bristol Care, and Furnell was the President of Bristol. (4) After Baker attempted to bring a class action against Bristol, Bristol sought to compel arbitration. (5) Bristol appealed the overruling of this motion to the Supreme Court of Missouri. (6) It made this motion pursuant to Missouri Revised Statutes Sections 435.355 (7) and 435.440, which permitted appeal "from an order denying an application to compel arbitration...." (8)

   Bristol and Baker had signed employment and arbitration agreements, both of which were prepared by Bristol at the same time that Baker received a promotion from Bristol. (9) This promotion included a change in pay-scheme from hourly to salary, and Baker was given a role as manager in one of Bristol's long-term care-providing locations. (10) Under the employment agreement, Baker's employment was to "continue indefinitely" unless either Baker provided 60 days' notice or Bristol chose to end her employment in any one of four ways. (11) The parties' signed arbitration agreement identified the consideration as "Baker's continued employment and mutual promises to resolve claims through arbitration," however the agreement also said that it would "not alter [Baker]'s status as an at-will employee" and "that Bristol specifically 'reserves the right to amend, modify, or revoke this agreement upon thirty (30) days' prior written notice to [Baker]."' (12) Baker commenced her class action after being removed from her employment with Bristol. The class action sought recovery for purportedly unpaid overtime, and this led Bristol, in turn, to make its motion to compel arbitration. (13)

   Bristol argued in favor of enforcing the arbitration clause, pointing to the arbitrator as the one who ought to resolve a dispute over enforceability. (14) For its argument, Bristol relied on the arbitration agreement itself, which stated, "The arbitrator has exclusive authority to resolve any dispute relating to applicability or enforceability of this Agreement." (15) Bristol advanced, in favor of the arbitration agreement's validity, that "there are two sources of considerations for the arbitration agreement: (1) Baker's promotion, continued employment and attendant benefits; and (2) Bristol's promise to arbitrate its claims arising out of the employment relationship between it and Baker and to assume costs of arbitration." (16) Baker denied the existence of any consideration needed to find the purported agreement valid and instead argued that she remained an at-will employee despite the promotion. (17)

   The Missouri Circuit Court of DeKalb County ruled against Bristol's attempt to compel arbitration. (18) The circuit court apparently agreed with Baker that the arbitration agreement in question was illusory. (19) The Missouri Court of Appeals for the Western District, in a one paragraph order, affirmed the circuit court's determination as being without error. (20) After a motion to transfer, the case was transferred to the Supreme Court of Missouri. (21)

   The Supreme Court of Missouri affirmed the judgment, consistent with the circuit court's order, finding the arbitration agreement to be without consideration and therefore invalid. (22) Specifically, the instant court found that "Baker's continued at-will employment and Bristol's promise to resolve claims through arbitration d[id] not provide consideration to form a valid arbitration agreement." (23) Therefore, the court held that when the only candidates for consideration to support a purported arbitration agreement are continued at-will employment and an illusory, "unilaterally and retroactively" alterable promise to engage in arbitration, the purported agreement is without consideration and therefore invalid." (24)

3. LEGAL BACKGROUND

   1. Arbitrability

      The State of Missouri has maintained the provisions of the Missouri Uniform Arbitration Act since at least 1980. (25) This Act states in relevant part, "A written agreement to submit any existing controversy to arbitration ... is valid ... save upon such grounds as exist at law or in equity for the revocation of any contract." (26) This mirrors the Federal Arbitration Act's ("FAA") statutory language that "[a] written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy ... shall be valid ... save upon such grounds as exist ... for the revocation of any contract." (27) This act supports the Federal government's "strong ... policy in favor of arbitration." (28)

      Similarly to the instant case, sometimes a court will be asked to determine a "question of arbitrability," that is, "gateway matters [like] whether parties have a valid arbitration agreement at all or whether concededly binding arbitration applies to a certain type of controversy." (29) The Supreme Court of the United States has presumed these gateway issues to be for courts to decide. (30) The Supreme Court of Missouri has not refrained from resolving questions of arbitration agreement formation. (31) The court in Dunn Industrial Group, Inc. v. City of Sugar Creek, consistent with the Supreme Court of the United States, held that "doubts as to arbitrability should be resolved in favor of coverage." (32) Before "parties are forced to submit to arbitration," the court should determine "whether the parties contractually agreed to arbitration." (33) In following this "limited inquiry to determine whether a valid agreement to arbitrate exists," the Missouri courts would be acting consistently with the Eighth Circuit Court of Appeals and would not be violating the Federal Arbitration Act. (34)

   2. At-Will Employment as Consideration

      The at-will employment doctrine, in which "an employer may terminate an ... employee 'for any reason or for no reason,"' is "well-established Missouri Law." (35) Along with the ability to terminate an employee's course of employment without any reason at all, Missouri courts have considered the lack of a contract that states a definite length of employment when determining whether an at-will employment relationship exists. (36) There have nevertheless been some restrictions and exceptions to this broad at-will employment doctrine permitting employee termination. (37)

      Missouri courts in the past have held that, at least where non-competition agreements are concerned, "[a]n employer's continuance of employment, where continuance is not required, supplies adequate consideration ...." (38) That this understanding of consideration might have been extended to arbitration agreements was shown by the 2010 case of Kunzie v. Jack-In-The-Box, Inc. (39) In that case, the court distinguished a prior case in which "continuance in employment ... supplie[d] adequate consideration for a non-competition agreement," not by limiting that case's applicability only to non-competition agreements, but by identifying that "the dispositive issue [was] not one of consideration, but of ... mutual agreement and acceptance." (40)

      If the consideration-fulfilling effect of continuance of at-will employment ever could have been so extended, its chances were cut short in 2008 by the hallmark case of Morrow v. Hallmark Cards, Inc., (41) "the seminal case addressing ... contract elements in the context of enforceability of an arbitration provision against at-will employees." (42) Morrow stood for the propositions that, in that court's evaluation of the enforceability of Hallmark's arbitration program, "[t]erms and conditions of at-will employment are not...