Just before the holidays in December, the Missouri Supreme Court issued a ruling that may allow employers to use initial at-will employment as a basis to support enforceable arbitration agreements.

The court's decision, in Soars v. Easter Seals Midwest, signals a potential easing of the judicial hostility that had developed in Missouri toward employment arbitration agreements.

But before we get to what the court did, a little background is needed.

Hard line on employment arbitration agreements

More than a decade ago, Missouri’s appellate court held that continued at-will employment would not support an employment arbitration agreement in which the employee was required to arbitrate while the employer was not. The ruling was significant because it departed from decisions holding that continued at-will employment -- and the value that the employer provides to the employee as a result -- was sufficient consideration for enforcing a non-compete agreement.

In other words, the appellate court essentially created different rules for arbitration agreements and non-compete agreements.

But the court’s decision left one rule intact: if both employer and employee were bound to arbitrate their employment-related claims against each other, that mutual promise was sufficient consideration to support the arbitration agreement.

After this ruling, the appellate courts issued a series of decisions about what it meant for an employer and employee to "mutually agree to arbitrate," and about the formation of employment arbitration agreements. Generally, the rulings were favorable to employees resisting arbitration. Carve-outs from arbitration (for example, allowing the employer to seek injunctive or declaratory relief in court in non-compete situations) made the arbitration agreement "non-mutual." Similarly, if an employer reserved the right to unilaterally amend the arbitration agreement, that made the agreement unenforceable.

The appellate courts also decided that initial at-will employment -- like continued at-will employment -- was not sufficient consideration to support an arbitration agreement.

Taken together, those prior court rulings meant that to be enforceable in Missouri, an arbitration agreement would have to include mutual promises to arbitrate -- without exceptions -- or the employer would have to provide the employee with something of value apart from the at-will employment relationship, such as a monetary payment in exchange for the agreement.

Is the hard line softening?

Which gets us back to what the Missouri Supreme Court did last month. In Soars, the court for the first time considered the enforceability of a "delegation clause" in an arbitration agreement. A delegation clause, or agreement, is an agreement between the employer and employee that an arbitrator -- not a court -- will decide whether there is a valid and enforceable arbitration agreement between the parties.



At first glance, the concept seems counterintuitive. How can an arbitrator decide whether there is an agreement to arbitrate when you first need to have an agreement to arbitrate to get before the arbitrator? The answer previously given by the U.S. Supreme Court, and now recognized by the Missouri Supreme Court, is that a delegation clause or agreement is its own agreement to arbitrate. In other words, the delegation clause or agreement is separate from the agreement to arbitrate the underlying employment-related claims.

This means that the court first looks at whether there is a valid delegation agreement. If all the elements of an enforceable contract -- offer, acceptance, and consideration -- are present for the delegation clause, then the delegation clause is enforceable and an arbitrator will decide whether the parties must arbitrate their underlying claims.

Consideration is established when the employer and employee have mutually agreed to let an arbitrator decide whether the dispute is arbitrable. The agreement would be mutual as long as neither party can unilaterally back out.

So, great, the court held that a delegation clause is enforceable. What does that have to do with initial at-will employment? Well, the court also included this golden nugget in a footnote (always read the footnotes, class):

Though the dissent cites court of appeals opinions finding initial at-will employment does not provide consideration, this Court has never decided whether initial at-will employment is consideration for an arbitration agreement. … The difference in consideration analysis between an offer of continued at-will employment and an offer of initial at-will employment is paramount. When continued at-will employment is offered in exchange for a signed arbitration agreement, at the time of the offer the employee already enjoys the rights and expectations that come with an employer-employee relationship. However, before the employee was hired, an employer-employee relationship did not exist. At the point of hiring, the employer confers the benefit of employment upon the employee, and it is axiomatic that with the benefit of employment comes a bundle of legal rights and expectations to which the employee was not entitled prior to the handshake. The dissent is mistaken in suggesting the two situations should be compared, because both present wholly distinct questions of law and fact.

(Emphasis added.)

The majority's assertion that initial at-will employment may be sufficient consideration to support an employment arbitration agreement is very encouraging and hopefully will lead to a body of more favorable case law. However, it is probably not "precedential" (meaning that courts are required to follow it) because it was not essential to the issue on which the court was ruling (that is, whether the delegation agreement was supported by mutual obligations). 

Lessons for employers

Here are my takeaways for employers wondering what this means as of now:

• If your employment arbitration agreement has a delegation clause, it should be enforceable as long as there isn’t any language allowing one party to avoid delegation.
• Enforcing your delegation clause does not mean that you get to arbitrate—it means only that you get to arbitrate about whether you get to arbitrate.
• You may decide that a delegation clause is the best course given the decade-plus of judicial hostility toward employment arbitration agreements in Missouri. However, keep in mind that if a judge decides that your arbitration agreement is not enforceable, you have the ability to immediately appeal that decision. On the other hand, if an arbitrator decides that your agreement is unenforceable, you have little recourse.
• There are now good arguments for asserting that initial at-will employment is consideration for the arbitration agreement. But there are still binding court of appeals opinions to the contrary, and they have technically not been overruled. So, employers entering arbitration agreements with employees in Missouri should provide some type of additional consideration until the issue is definitively settled by the courts.