So, remember when we talked about Just How Small the Bullseye Is for Challenging a Delegation Clause a few weeks ago? Apparently, the target is small but not necessarily as unhittable as I suggested.
You might recall that in that earlier post we were looking at a Missouri Supreme Court decision, State Ex Rel. Newberry v. Jackson, 2019 WL 2181859 (Mo. May 21, 2019). There, Missouri’s highest court said, “Rent-A-Center teaches that a delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact that it is contained in an arbitration contract that the party also contends is invalid.” As a result, the Court rejected arguments that a delegation clause failed for the same reasons that the arbitration clause failed.
Apparently, the Eighth Circuit didn’t read Jackson (or didn’t agree with it) before it issued its recent decision in Shockley v. PrimeLending, 2019 WL 3070502 (8th Cir., July 15, 2019).
In Shockley, an employer was trying to force an employee to arbitrate alleged violations of the Fair Labor Standards Act. The arbitration agreement, including a delegation clause, was contained in an employment handbook addendum. This addendum was available to the employee electronically.
The lower court concluded that the employee hadn’t accepted the addendum and thus that there was no formation of either a contract for arbitration or the delegation clause. The Eighth Circuit noted that the record was “resoundingly clear” that the employee had challenged the formation of the delegation provision. “Because the delegation provision is ‘simply an additional, antecedent agreement’ that operates like any other contract,” it could be disabled by any contract formation defense, including lack of mutual assent.
Relying on Missouri law, the Eighth Circuit upheld the lower court, reasoning that “acceptance is [only] present when the offeree signifies assent to the terms of an offer in a ‘positive and unambiguous’ manner.” The “mere continuation of employment” did not manifest “the necessary assent to [the] terms of arbitration” or the delegation clause.
In some language that’s also interesting (read “what the hell!”) in light of our earlier discussions of “wrap” agreements (see here,here, and here), the Eighth Circuit says that although the employee was presented with two opportunities to review the handbook addendum through an optional hyperlink on the company’s network, at best the employer could show that the employee “acknowledged the existence of the delegation provision.” But the court went on to say that “[w]e are aware of no legal authority 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.” Huh.
Because the employee never agreed to the delegation provision, the court, rather than an arbitrator, could decide the validity of the arbitration agreement. And because the arbitration agreement was also contained in the handbook addendum, the court concluded that the employee never agreed to it either.
So, just to drive the key points home, the Eighth Circuit invalidated a delegation clause for the same reason that it invalided the arbitration clause, which seems directly contrary to what the Missouri Supreme Court did in Jackson. Along the way, the Eighth Circuit also, perhaps more importantly, interpreted acceptance in Missouri general contract law, at least in employment relationships, to require more than notice. That conclusion tosses all manner of “wrap” agreements into doubt.