8th Cir. Affirms Denial of Motion to Compel Arbitration in FLSA Case Against Lender

The U.S. Court of Appeals for the Eighth Circuit recently affirmed the denial of a lender’s motion to compel arbitration over a suit filed by a former employee alleging violations of the federal Fair Labor Standards Act (FLSA).

In so doing, the Court held that the former employee’s mere review of the employee handbook, and the arbitration and delegation provisions therein, did not constitute acceptance of the relevant clauses, and without acceptance no valid contracts to arbitrate their disputes or delegate the decision to an arbitrator were formed.

A copy of the opinion in Shockley v. PrimeLending is available at:  Link to Opinion.

A mortgage lender (“company”) employed an employee between June 2016 and July 2017.  In August 2016 and February 2017, the employee accessed the computer network accessible by the company’s employees to click and open various company documents, including the company’s handbook addendum.  Clicking the handbook generated an acknowledgement of review and hyperlink to its full text.

The handbook includes provisions: (i) that all covered disputes will be settled by binding arbitration and waiving the parties’ rights to trial (the “arbitration provision”) and; (ii) that the arbitrator, and no federal, state or local court or agency, possesses exclusive authority to resolve any claim relating to interpretation or enforceability of the arbitration provision (the “delegation provision”).  The employee allegedly had no recollection of reviewing the handbook, and there was no evidence of opening or reviewing its full text.

In September 2017, the employee sued the company under the FLSA, alleging that she was not paid for all earned wages and overtime.  The company moved to compel arbitration pursuant to the handbook’s arbitration provision.

The trial court denied the company’s motion to compel, holding that the parties did not form an enforceable agreement to arbitrate disputes, because (i) the handbook could be modified by the company unilaterally and thus did not constitute an offer, and; (ii) even if the arbitration provision constituted an offer, mere review of the handbook did not constitute acceptance.  See e.g., Nebraska Machinery Co. v. Cargotec Solutions, LLC, 762 F.3d 737 (8th Cir. 2014) (party not compelled to proceed to arbitration to prove it never agreed to arbitrate claims).  The instant appeal followed.

The issue on appeal before the Eighth Circuit was whether the parties formed a valid contract that binds them to arbitrate their dispute, a burden to be proven by the company as the party seeking to compel arbitration.  See Jackson v. Higher Educ. Loan Auth. of Mo., 497 S.W.3d 283, 287 (Mo. Ct. App. 2016).  Missouri law governs interpretation of the handbook and relevant clauses, which requires (1) an offer, (2) acceptance, and (3) consideration to form a valid and enforceable contract.  See Baker v. Bristol Care, Inc., 450 S.W.3d 770, 774 (Mo. 2014) (en banc).

As you may recall, Missouri recognizes delegation provisions as “an agreement to arbitrate threshold issues concerning the arbitration agreement,” placing the “gateway questions of arbitrability” into the hands of an arbitrator—including determining the validity of the arbitration agreement itself.  Soars v. Easter Seals Midwest, 563 S.W.3d 111, 114 (Mo. 2018) (en banc); Jackson at 68-69.  Thus, if the delegation provision was declared invalid, the company’s claim to compel arbitration of the arbitrability issues fails.  Conversely, if the delegation provision is a valid contract under Missouri law, the appellate court’s inquiry ends, and all other questions must go to an arbitrator.  Id. at 70.

Assuming for the sake of its discussion that the delegation provision, as provided, constituted an offer from the company to the employee, the appellate court examined whether or not the offer was accepted.  In doing so, “the critical question [was] whether signals sent by [the employee] to [the company] objectively manifest [the employee’s] intent to be presently bound.”  Kunzie v. Jack-In-The-Box, Inc., 330 S.W.3d 476, 484 (Mo. Ct. App. 2010).

Under Missouri law, “mere continuation of employment [does not] manifest[] the necessary assent to [the] terms of arbitration” (Id.) and “silence generally cannot be translated into acceptance.” Katz at 545.  However, continued employment may constitute acceptance when expressly stated in the document and informed of such by the employer.  See Berkley v. Dillard’s, Inc., 450 F. 3d 775, 777 (8th Cir. 2006).

Here, the employee was twice presented opportunity to review the full handbook through an optional hyperlink on the company’s network; however, the initial review was not conditioned on her offer of employment.  While the employee was advised that upon entry to the company’s internal system she acknowledged review of the company’s materials (including the handbook and relevant delegation provision), the appellate court noted that the record did not establish that the employee actually reviewed the handbook, nor does she recall doing so.

At best, the company can show that the employee acknowledged the existence of the delegation provision and was thus aware of the offer, but on the facts presented, it was possible that she never saw it, and “no authority [exists] holding that an employee’s general knowledge or awareness of the existence of a contract constitutes the positive and unambiguous unequivocal acceptance required under Missouri law.” Katz at 545.  Applying Missouri contract law, mere review of the subject materials did not constitute acceptance on the employee’s part, and thus no enforceable contract as to the delegation provision was formed.

Because an arbitration provision lacking a valid delegation provision leaves the remaining arbitration agreement open to review for validity, and is a standalone and independent contract from the delegation provision, it requires the same proof of the elements of a valid contract.  Because the arbitration provision was presented in the handbook in the same fashion as the delegation provision, no valid contract was formed as to the arbitration provision due to lack of acceptance.

Accordingly, as no contractual relationship to dispute arbitration was formed between the company and employee, the trial court’s denial of the company’s motion to compel arbitration was affirmed.

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This article courtesy of Maurice Wutscher’s Consumer Financial Services Blog and was written by Christopher P. Hahn.