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Monday, July 21, 2008

Missouri Appeals Court Holds that Employee ADR Program is Not an Enforceable Contract

StateflagmissouriIn late June, the Missouri Court of Appeals addressed the legal enforceability of a program adopted by Hallmark requiring employees to arbitrate employment disputes. The court held that Hallmark's ADR program did not constitute a contract and that there was no consideration to bind the employees to the promise to arbitrate claims.

Mary Kay Morrow began employment with Hallmark in 1982. In 2002, the company adopted an ADR program. The policy provided that, if an employee continued to work for the company after the policy's effective date, that employee was deemed to have agreed to arbitration under the policy's procedures. When Ms. Morrow sued Hallmark for age discrimination, the company pointed to its ADR program as a binding contract. Morrow argued that "the notion that the [ADR policy] is a contract is an illusion." The Missouri appellate court held that Morrow could not be compelled to arbitrate because the ADR program did not constitute a "contract." The court appeared to reason that simply continuing employment did not amount to assent to be bound by the ADR policy and, thus, no contract was formed:

Contracts embody the intention of two or more parties to bind themselves legally to promises, and are often characterized by the concepts of mutual promises. Sometimes, in lieu of mutual promises, a non-promising party may provide legal consideration, that is, the transfer of something of value to the promising party. See Triarch Indus., 158 S.W.3d at 775. Many courts have invalidated purported contracts containing “non-mutual arbitration provisions” (requiring only the party with less economic bargaining power to submit claims to arbitration) because they are so “one-sided” as to be illusory or unconscionable. Id. at 774-75.

Hallmark informed its employees that by continuing to work after notice of the DRP, they would be deemed to have consented to its terms. Hallmark acknowledges that the DRP was presented as a new term or condition of employment. Employees are typically not asked or required to sign a document indicating agreement with new terms of employment. If employees do not agree with a new term of employment, they may leave.

With regard to contracts, on the other hand, signatures remain a common, though not exclusive, method of demonstrating agreement. See, e.g., Bailey, 209 F.3d at 745 (noting that the employee never signed an agreement to arbitrate and expressed disagreement with the plan); Gannon v. Circuit City Stores, Inc., 262 F.3d 677, 682 (8th Cir.2001) (employee demonstrated her intent to arbitrate by signing agreement); McIntosh v. Tenet Health Sys. Hosp., Inc., 48 S.W.3d 85, 89 (Mo.App.2001) (noting that employee signed arbitration clause agreeing, along with company, to submit claims to arbitration). In Gilmer, 500 U.S. at 23, both employer and employee signed the agreement required by the NYSE. Here, in contrast, the employee was not expected to express agreement, but was expected simply to acquiesce in the new requirement in order to keep working.FN3 As will be shown in the discussion below, the distinction between terms and conditions of employment, on the one hand, and legally enforceable contracts, on the other, is crucial for this case.


The court's contract formation discussion also had a strong taste of unconscionability and/or illusory promise analysis:

[T]he program does not involve mutual promises because Hallmark reserves the right, in its sole discretion, to modify or revoke the provisions of this program.

Further, and the part of the case that raises a nice, modern example of the relationship between contract modification and consideration, the court held that the Morrow's continued employment in an at-will employment relationship did not constitute consideration:

Hallmark's position, for instance, is that it lawfully terminated Ms. Morrow's at-will employment when it was no longer pleased with her services. It terminated her a little over a year after the DRP went into effect, but the legal posture of the case would be the same if it had terminated her fifteen minutes after the DRP went into effect. Ms. Morrow had no employment contract, and no offer of “continuing employment,” with Hallmark.

We also reject the notion that, after the DRP went into effect, the work she was then allowed to do could constitute consideration, as though a contract could be formed in retrospect. Obviously, there must be a meeting of the minds at the time the purported contract is formed. “Continued employment” was neither promised at that time nor received at that time-that is, at the time the alleged contract was formed.

The idea that an employer can create any legal contract it dares to create (based on a condition of at-will employment) cannot be sustained upon reflection. Imagine, for instance, an employer publishing a memo to employees stating that:


Anyone who continues to work for us through next Monday will be conclusively deemed to have agreed, as a condition of remaining in our employ through that date, that you will contribute twenty dollars per month over the next ten years to the National Association of Manufacturers (NAM), whether or not you remain employed here during that time. If you do not agree, you will need to resign your employment immediately, because by continuing to work, you are agreeing.

While it is unlikely that any employer would do that, we are here talking about contract analysis. If an employer did impose such a requirement, it would be impossible to conceive that anyone would seriously argue that because an employee continued to work through the next Monday before being terminated, there was formed a true, legally enforceable contract to support the NAM, rendering the requirement legally enforceable as a contractual provision. Similarly, a requirement pursuant to a collective bargaining agreement that the employees must support their union as a condition of employment would be understood to apply only as long as the employee remained in employment, and would be enforceable only through employee discipline, not through the courts. Nor could an employer effectively argue that the fact that the employee continued to work for a year after the requirement became effective somehow constituted legal consideration supporting the contract.

Morrow v. Hallmark, 2008 WL 2582662 (Mo. App. W. D., June 30, 2008).

[Meredith R. Miller]

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Thanks to ContractsProf Blog for the following: In late June, the Missouri Court of Appeals addressed the legal enforceability of a program adopted by Hallmark requiring employees to arbitrate employment disputes. The court held that Hallmark's ADR pro... [Read More]

Tracked on Jul 21, 2008 8:40:57 PM