Tarmac Can Force Worker to Arbitrate Breach of Contract Claims

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By Christopher Brown

Tarmac International Inc. can compel a former employee to arbitrate his employment dispute rather than take it to court, the Missouri Court of Appeals said March 20. The decision overturns a trial court ruling that deemed the arbitration provision in Tarmac’s employment contract with the worker invalid.

The trial court had no authority to decide whether the arbitration provision was valid when the employment agreement delegated that authority to an arbitrator, the court said.

Threshold issues—like the question of whether an arbitration clause is valid—can be resolved by an arbitrator if an employment agreement provides “clear and unmistakable evidence that the parties intended to arbitrate those issues,” the court said.

And an employment agreement can provide such evidence when it incorporates by reference the rules of the American Arbitration Association, which include a delegation provision, the court said.

The ruling reaffirms existing Missouri law on delegation of authority to arbitrators, and echoes a recent Missouri Supreme Court ruling that made clear for the first time that incorporating the American Arbitration Association rules was sufficient to establish intent to arbitrate threshold issues, according to George P. Coughlin, a Kansas City attorney who represented Tarmac.

“For some reason, all of these young plaintiffs’ attorneys think that an employment contract with an arbitration clause is unenforceable,” Coughlin told Bloomberg Law March 20. “But that’s not the law in Missouri and never has been—in fact, the courts have been clear that an arbitration clause is enforceable even in an employment contract that’s not enforceable.”

Fired Salesman Sued Manufacturer

The lawsuit concerned a dispute between Tarmac, a maker of equipment for the asphalt industry, and Stephen Latenser, a former salesman for the company. Tarmac fired Latenser in July 2014, and Latenser filed a lawsuit, alleging breach of contract and unjust enrichment.

Tarmac filed a motion to compel arbitration, and the trial court denied the motion, finding that the arbitration provision was invalid. Tarmac appealed, arguing that the court lacked the authority to rule on the provision’s validity because the employment agreement delegated that authority to an arbitrator.

The dispute focused on arbitrability—whether disagreements regarding an arbitration provision’s validity, formation, enforcement, and application can be sent to an arbitrator for resolution. The court said these threshold issues are typically decided by a judge, but could be delegated to an arbitrator if the parties agreed to do so.

The parties also need to provide clear and unmistakable evidence of their intent to delegate these issues to the arbitrator, the court said. But that requirement doesn’t mean that a delegation provision must be explicitly written into the arbitration provision. Incorporating the delegation provision of the American Arbitration Association by reference will suffice, it said.

The court of appeals remanded the case to the trial court with instructions to stay the proceedings and compel arbitration.

Tom Hershewe, an attorney with Dollar, Burns & Becker LC in Kansas City, Mo., who represented the employee before the court of appeals, declined to comment.

Coughlin is of counsel with Dysart Taylor Cotter McMonigle & Montemore PC in Kansas City, Mo.

The case is Latenser v. Tarmac Int’l Inc., Mo. Ct. App., No. WD81089, ruling 3/20/18.

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