Baker v. Bristol Care, Inc.

• Citation: 450 S.W.3d 770
• Decision Date: 19 August 2014
• Docket Number: No. SC 93451.,SC 93451.
• Court: United States State Supreme Court of Missouri
• Parties: Carla BAKER, Respondent, v. BRISTOL CARE, INC., d/b/a Bristol Manor, and David Furnell, Appellants.

450 S.W.3d 770

Carla BAKER, Respondent

v.BRISTOL CARE, INC., d/b/a Bristol Manor, and David Furnell, Appellants.

No. SC 93451.

Supreme Court of Missouri, En Banc.

Aug. 19, 2014.

Rehearing Denied Oct. 28, 2014.

Brian N. Woolley of Lathrop & Gage LC, Kansas City, for Bristol.

Jayson A. Watkins and Charles Jason Brown of Brown & Associates LLC, Gower, for Baker.

Opinion

RICHARD B. TEITELMAN, Judge.

Bristol Care Inc. and David Furnell (Appellants) appeal an order overruling their motion to compel arbitration. They contend that the circuit court erred by not compelling arbitration because the arbitration agreement between Bristol and its employee, Carla Baker, is valid and enforceable.

This Court affirms the circuit court's order because there was no consideration to create a valid arbitration agreement.¹ First, Baker's continued at-will employment does not provide consideration for the arbitration agreement. Second, the fact that Bristol retroactively could modify, amend or revoke the agreement means that Bristol's promise to arbitrate is illusory and does not constitute consideration for Baker's agreement to arbitrate.

FACTS

Bristol promoted Baker from her position as an hourly employee to a salaried managerial position at one of Bristol's long-term care facilities. Bristol drafted an employment agreement and arbitration agreement for Baker to sign. The parties signed the agreements contemporaneously at the time of Baker's promotion.

The employment agreement provided that Baker's employment would “continue indefinitely” unless Baker gave 60 days notice or Bristol elected to terminate her employment in one of four ways: (1) with five days' written notice “at [Bristol's] sole option;” (2) without notice if Bristol paid Baker five days' compensation; (3) without notice if, in Bristol's “sole opinion,” Baker violates the employment agreement in a way that “jeopardizes the general operation of the facility or the care, comfort or security of its residents;” or (4) without notice for “dishonesty, insubordination, moral turpitude or incompetence.” The employment agreement also provided that Baker would receive increased pay and employment benefits, including a license to live in the facility rent-free.

The arbitration agreement provides that all legal claims the parties may have against one another will be resolved by binding arbitration. The arbitration agreement provides that consideration consists of Baker's continued employment and mutual promises to resolve claims through arbitration. Section 3 of the arbitration agreement, titled “Employment–At–Will,” provides:

This Agreement is not, and shall not be construed to create, a contract of employment, express or implied, and does not alter Employee's status as an at-will employee. Notwithstanding this Agreement, either Employee or Company can terminate the employment ... at any time, for any reason, with or without cause at the option of the Employee or the Company.

Finally, the arbitration agreement provides that Bristol specifically “reserves the right to amend, modify or revoke this agreement upon thirty (30) days' prior written notice to the Employee.”

Bristol terminated Baker from her position as administrator of the long-term care facility. Baker filed a class action lawsuit against Appellants seeking compensation for allegedly unpaid overtime hours. Appellants filed a motion to compel arbitration. The circuit court overruled the motion. This appeal followed.

ANALYSIS

Section 435.440, RSMo 2000,² provides that an appeal may be taken from an order denying an application to compel arbitration made under section 435.355. The order denying Bristol's motion to compel arbitration is appealable.

I. Validity of the arbitration agreement is determined by the courts

Appellants assert that the arbitrator should decide any questions of enforceability because both Bristol Care and Baker agreed to have the arbitrator do so in the arbitration agreement. The arbitration agreement provides: “The arbitrator has exclusive authority to resolve any dispute relating to applicability or enforceability of this Agreement.”

Appellants rely on Rent–A–Ctr., W., Inc. v. Jackson, 561 U.S. 63, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). In Rent–A–Center, the arbitration agreement provided that the arbitrator “shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement.” Id. at 2775. (Emphasis added). The employee argued that the agreement was not enforceable because it was unconscionable under Nevada law. Id. The United States Supreme Court held that the delegation provision vested the arbitrator, not the courts, with the authority to determine whether the agreement was unconscionable. Id. at 2778–79.

The arbitration agreement in this case provides that the arbitrator will resolve disputes “relating to the applicability or enforceability” of the agreement. Unlike the agreement at issue in Rent–A–Center, the arbitration agreement in this case does not delegate to the arbitrator disputes regarding contract formation. A dispute “relating to the applicability or enforceability” of the agreement presupposes the formation of a contract. Baker's argument that there was no consideration to create a valid agreement raises a contract formation issue rather than an applicability or enforceability issue.

Although federal law preempts state laws that invalidate arbitration agreements on public policy grounds, state courts are permitted to apply state law defenses to the formation of the particular contract at issue. Brewer v. Missouri Title Loans, 364 S.W.3d 486, 492 (Mo. banc 2012) ; Robinson v. Title Lenders, Inc., 364 S.W.3d 505, 510 (Mo. banc 2012). Baker's claim raises a contract formation issue that is subject to resolution by Missouri state courts.

II. Validity of Arbitration Agreement

The issue of whether arbitration should be compelled is a question of law subject to de novo review. State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 856 (Mo. banc 2006). “Missouri contract law applies to determine whether the parties have entered a valid agreement to arbitrate.” Id. “The essential elements of any contract, including one for arbitration, are “ ‘offer, acceptance, and bargained for consideration.’ ” Johnson v. McDonnell Douglas Corp., 745 S.W.2d 661, 662 (Mo. banc 1988). Consideration “consists either of a promise (to do or refrain from doing something) or the transfer or giving up of something of value to the other party.” Morrow v. Hallmark Cards, Inc., 273 S.W.3d 15, 25 (Mo.App.2008).

Appellants argue that there are two sources of consideration 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 the costs of arbitration. “If two considerations are given for a promise, one of them being legally sufficient to support a promise and the other not sufficient, the promise is enforceable.” Earl v. St. Louis Univ., 875 S.W.2d 234, 236–237 (Mo.App.1994) (citing 1 Corbin on Contracts, § 126 (1963)). The arbitration contract, therefore, is enforceable if either source of consideration is valid.

A. Continued Employment

Bristol argues that Baker's acceptance of continued employment, with the attendant increase in salary and benefits, plus the limits on Bristol's right to terminate her employment, constitute consideration to support the arbitration agreement.

Baker argues that her employment remained at-will and that continued at-will employment does not constitute valid consideration to support the arbitration agreement.

The Missouri Court of Appeals has held that continued at-will employment is not valid consideration to support an agreement requiring the employee to arbitrate his or her claims against the employer. See, e.g., Whitworth v. McBride & Son Homes, Inc., 344 S.W.3d 730, 741 (Mo.App.2011) ; Frye v. Speedway Chevrolet Cadillac, 321 S.W.3d 429, 438–439 (Mo.App.2010) ; Morrow, 273 S.W.3d at 26. An offer of continued at-will employment is not valid consideration because the employer makes no legally enforceable promise to do or refrain from doing anything it is not already entitled to do. The employer still can terminate the employee immediately for any reason. Morrow, 273 S.W.3d at 26–27. While the federal courts have reached a different result, this Court rejects that approach and, instead, adopts the analysis employed by Morrow and subsequent court of appeals cases, which hold that continued at-will employment is not valid consideration to create an enforceable contract.³ The issue becomes whether the employment and arbitration agreements altered Baker's status as an at-will employee.

The at-will employment doctrine is well-established in Missouri law. Margiotta v. Christian Hosp. Ne. Nw., 315 S.W.3d 342, 345 (Mo. banc 2010) (citing Johnson v. McDonnell Douglas Corp., 745 S.W.2d at 661 ). Absent an employment contract with a “definite statement of duration ... an employment at will is created.” Id. citing Luethans v. Washington Univ., 894 S.W.2d 169 (Mo. banc 1995). An employer may terminate an at-will employee “for any reason or for no reason.” Id. (citing Crabtree v. Bugby, 967 S.W.2d 66, 70 (Mo. banc 1998) ). Key indicia of at-will employment include indefinite duration or employment and the employer's option to terminate the employment immediately without cause.

The employment agreement provides that Baker's employment will “continue indefinitely” unless Bristol elected to terminate Baker by giving her five days' written notice “at [Bristol's] sole option” or terminating her without notice and paying Baker five days' compensation. The employment agreement permits Bristol to terminate Baker immediately without notice for any reason by paying her what amounts to a severance package worth five days' pay. There is no guaranteed duration of employment. The lack of a...