Arguing Arbitration: Senate bill could align laws with federal practices

At 1,048 words, Missouri Senate Bill 45 is relatively short, but it could have far-reaching implications for Show-Me State employees and employers working to settle disagreements.

When a disagreement arises – such as employee discrimination, harassment or breech of a nonsolication agreement – and an arbitration contract previously was signed by both parties, they enter into what’s known as binding arbitration.

According to legaldictionary.com, arbitration simply is the investigation and determination of a matter of difference between contending parties by a third person.

Under current Missouri law, when a dispute arises, a judge decides whether there is a valid binding arbitration agreement before the parties enter into the arbitration process. SB 45 seeks to modify that process, allowing the arbiter, rather than a judge, to decide if the arbitration agreement is valid.

Sponsored by Sen. Gary Romine, R-Farmington, the bill, which already has passed the Senate and is in the House Legislative Oversight Committee, has drawn criticism from one local lawyer and praise from the Missouri Chamber of Commerce and Industry.

On March 6, Robert Curran of Springfield-based Curran Law Firm testified before a Senate committee on what he calls “an unfair piece of legislation that denies employees their rights and allows for unethical corporate business practices.”

“When it comes to the financial interest of a judge presiding over a case, we have very strict standards. SB 45 wants to throw these standards out the window,” he said.

The state chamber contends the legislation is needed to free up Missouri’s overburdened court system.

“It makes sure disputes can be resolved quickly and efficiently, and that is especially important to employees who might not have the means to take a dispute to court,” said Karen Buschmann, chamber vice president of communications, via email. “At the same time, it is also judicially efficient and it frees up court dockets by resolving these issues outside of the courts.”

For employers
Spencer Fane LLP partner Paul Satterwhite said in recent years, Missouri appellate courts have eroded the effectiveness of arbitration agreements between employers and employees.
 
“Federal arbitration laws are pretty strong, but in Missouri, enforcement of arbitration agreements has been made more difficult,” said Satterwhite, who specializes in labor and employment law. “The Missouri appellate courts have tended to move the law in favor of employees. It’s been a gradual process. That’s part of how this bill came about. The legislature is trying to correct some steps the Missouri appellate courts have taken.”

Declining to disclose client numbers, Satterwhite said arbitrations happen more often than people realize. Since they’re private matters, they aren’t covered by media in the same say a trial would be.

SB 45 could provide more certainty for employers, he said.  

“When an employment dispute is in the Missouri court system, employers and employees have the option to appeal and that process can drag out,” he said. “It’s very hard to appeal an arbitration decision, so the matter is usually resolved by the arbitrator.”

“Though, that’s risky for the employer as well. If the decision doesn’t go their way, they  have little recourse.”

When courts on the federal level took a similar position, it relieved some backlog, Satterwhite said.

“Through this legislation, we hope to provide consistency and align with federal law and the many other states so that Missouri employers and employees can rely on an arbitration system that provides fair and speedy dispute resolution,” the chamber’s Buschmann said.

For employees
Curran, a personal injury attorney, said the bill could deprive employees their day in court and fosters a system where every decision as to arbitration is made by a person who has a vested financial interest in the outcome.

“It’s circular reasoning,” he said. “The arbiter stands to gain financially from going to arbitration and every single case would be tainted with this partiality. They could make tens of thousands of dollars.”

Curran illustrated his case to the Senate committee: For example, if a judge is assigned to a case where the outcome will affect the judge’s personal finances, ethics rules require them to recuse themselves, and the case is sent to another judge with no conflict. A judge with a conflict can’t even decide the next judge to receive the case assignment, because that decision would be tainted. Judges are required to avoid even the appearance of impropriety.

Curran contends most employees don’t even know they’ve signed an arbitration agreement.

“The average person blindly signs all of the paperwork that the (human resources) person puts in front of them,” he said. “The average person has no understanding of what these agreements mean or do.

“My clients are often painted as money hungry, but most of the time they just want the action to stop.”  

NYT investigates
The use of arbitration agreements is growing rapidly nationwide. From credit card agreements to cellphone contracts and at nursing homes, companies are inserting arbitration clauses in consumer and employment contracts. A 2015 investigation by The New York Times found 1,704 federal class action suits filed between 2005 and 2014 in which defendants filed a motion to compel arbitration. Since no government agency tracks class actions, The Times examined federal cases and printed their findings in a three-part series. Of the nearly 2,000 cases, judges ruled in the companies’ favor in four out of every five cases.

“The fact that there is such a hard push for arbitration provisions by employers, and a fight back against it by employees’ attorneys, proves that a jury trial is not the equivalent of a binding arbitration,” Curran said. “If they were genuinely equivalent, then no one would really much care one way or the other.

“The very reason employers push so hard for binding arbitration is precisely because the employer is heavily favored in an arbitration context.”

According to The Times article, when it comes to federal class actions, arbitration clauses come into play most often in employment cases. Most of these involve wage disputes, but companies also are pursuing arbitration in discrimination claims.

The Times found 149 labor related cases 2005-09 and more than double that in the next five years. Cases shot up 215 percent to 470 in 2010-14. Contract cases were up 47 percent.

The newspaper’s investigation was based on thousands of court records and interviews with hundreds of lawyers, corporate executives, judges, arbitrators and plaintiffs in 35 states. The newspaper did not specify if Missouri was included in the study.

“It’s not a perfect situation for employers or employees,” Satterwhite said. “But it should be available as an option.”


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