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Don’t Fumble the Ball With Your Arbitration Program

The Kansas City Chiefs recently suffered two losses on the same day. Weird, you might think, because the NFL does not schedule double-headers, and it’s the offseason anyway. Those setbacks, however, did not occur on the football field, but rather in court. Their opponents were a pair of former employees, and the subject was an arbitration agreement that the organization required its workers to sign.

The decisions in the two pending cases, entered on February 26, 2013 by the Missouri Court of Appeals, underscore why arbitration programs in the workplace must be carefully crafted. In both disputes, former employees of the Chiefs filed lawsuits claiming age discrimination. The Chiefs moved to have the cases sent to an arbitrator. The trial courts refused and the appellate court agreed, ruling that the arbitration agreement was unenforceable. Consequently, now the former employees can proceed toward jury trials in state court. (Interestingly, while the Chiefs were trying to avoid that forum in these cases, a recent development in a separate case may change their outlook somewhat. On March 6, 2013, in an age discrimination case by a third former employee, a Jackson County jury returned a verdict in the Chiefs’ favor.)

So what made the Chiefs’ arbitration playbook invalid? In legal terms, the agreement lacked “consideration.” Translated, that means the organization did not give up anything of value in return for the employees’ promise to arbitrate their claims. Essentially the arbitration agreement was one-sided. An offensive coordinator designing plays might not be concerned with ensuring the other side gets a benefit, but the world of contract law involves a different type of “Xs and Os.”

First, the employees argued that the Chiefs did not promise to arbitrate any claims the organization may have against the workers—only the employees’ claims were covered. The Court of Appeals strongly suggested that if there had been a mutual promise to arbitrate claims on both sides, that would have been sufficient to make it enforceable.

Lacking a mutual promise to arbitrate, the Chiefs were left to argue that the workers’ promise to arbitrate was supported by the organization’s promise of continued employment. The Chiefs contended that one employee’s agreement was made as a condition of her beginning employment, but the Court concluded that while it was signed on her first day, it had not been part of the job offer already extended to her. Therefore, she already had a position, and signing the agreement was simply a condition of continuing her employment. In the case of the other employee, the agreement was admittedly not signed until well into his employment. So there too, it was not a prerequisite to getting hired, but rather a condition of remaining employed. Because both employees were “at-will” and could be terminated at any time, the Court of Appeals held that the promise of continued employment was not sufficient to support the promise to arbitrate. (In this regard, Missouri law departs from the approach taken in a number of other states, where a promise of continued at-will employment will suffice.)

Takeaway for Missouri employers: If you have an arbitration program, make sure the agreement is supported by consideration. That may take a number of forms, including a mutual promise to arbitrate the employer’s claims, a signing bonus, or a truly conditional offer of employment. Note also that the “consideration” factor is just one of many components to address when crafting an arbitration agreement. If you have an arbitration program that needs review, or you are considering implementing one, members of Spencer Fane’s Labor & Employment Practice Group have specialized experience in this area and would be glad to assist.