Still looking for a New Year’s resolution? The Missouri Court of Appeals rang in 2015 by refusing to enforce an arbitration agreement between an employer and an employee. The decision continues the robust trend in Missouri of restricting the enforceability of arbitration clauses. If your company has an arbitration agreement with employees in Missouri, then there is one worthwhile resolution to put on your list this year: Verify whether that agreement is still enforceable under Missouri law.
Jimenez v. Cintas Corporation
In Jimenez v. Cintas Corporation, the employee had signed an agreement at the time of her hire stating that both the employer and the employee would arbitrate any legal disputes that might arise between the parties. However, the arbitration clause contained an important exception for the benefit of the employer. The agreement contained a noncompete clause, and the employer reserved the right to go to court, rather than before an arbitrator, to obtain injunctive relief to enforce the noncompete. This type of provision is commonly included in arbitration agreements that also include a noncompete because it is difficult to obtain timely preliminary relief in arbitration, as it takes some time to select an arbitrator.
After her discharge, the employee filed a lawsuit alleging discrimination and harassment in violation of the Missouri Human Rights Act. The employer moved to compel arbitration, citing the arbitration agreement, but the trial court refused to compel arbitration. The Court of Appeals affirmed, holding the employer had not provided adequate consideration to create a binding contract. In doing so, the court reached several decisions that will affect the validity of arbitration agreements in future cases between employees and employers (at least on the eastern side of the state).
New At-Will Employment Is Not Consideration
Last summer, in Baker v Bristol Care Inc, the Missouri Supreme Court held that if an employee signs an arbitration agreement after being hired, the employee’s continued at-will employment will not constitute valid consideration to form a binding arbitration agreement. However, the court did not resolve the question of whether an offer of “new” at-will employment to a newly hired employee would be sufficient. In Jimenez, the majority opinion from the Missouri Court of Appeals Eastern District answered this open question with a resounding “no”: “a promise of at-will employment does not qualify as consideration, regardless of whether it is characterized as ‘new,’ ‘future,’ or ‘continued’ at-will employment.” The Jimenez majority opinion makes clear that no form of at-will employment is sufficient to form an arbitration agreement.
The Employer Did Not Make a Mutual Promise to Arbitrate
The court went on to consider whether the employer’s mutual promise to arbitrate disputes was sufficient consideration to form a binding agreement. The court held that it was not. The agreement provided that the employer alone was exempted from arbitrating an alleged violation of the noncompete provision. The court noted that this exception would allow the employer to avoid arbitration in the claims that it was most likely to bring against the employee, while the employee would be bound to arbitrate any and all claims against the employer. Citing the Missouri Supreme Court’s recent decision in Baker, the court refused to enforce the arbitration agreement, holding it lacked mutuality of obligation because of the exception: “Where the practical effect of an arbitration agreement binds only one of the parties to arbitration, it lacks mutuality of promise, and is devoid of consideration.”
In Jimenez, the Missouri Court of Appeals continued its recent trend of closely scrutinizing and restricting the enforcement of employment arbitration agreements. The court made it clear that, unless the employer and employee have mirror-image obligations to arbitrate disputes, the agreement will be struck down as lacking mutuality of obligation. In this case, the court invalidated the agreement based on an exception commonly included in arbitration agreements between employers and employees.
According to Eric A. Todd, managing shareholder of the St. Louis office of Ogletree Deakins, “It is common for arbitration agreements between employers and employees to include an exception for violations of a noncompete. In light of this recent decision, employers would be well-advised to reevaluate those provisions and the enforceability of their arbitration agreements with employees.”
If your agreement contains a noncompete, discuss with your employment counsel whether what should be exempted from arbitration is only preliminary injunctive relief (a temporary restraining order or preliminary injunction, for example) and exempt the employee from obtaining such relief as well (e.g., permitting the employee to seek a TRO or preliminary injunction of enforcement of the noncompete until an arbitration on the merits. Whether or not your agreement contains a noncompete, you should also query whether, in addition to continued employment, employees should be offered some form of remuneration for signing the agreement.
If your business needs a New Year’s resolution, the Jimenez decision is yet another reminder that employers should resolve to carefully review their employment contracts to determine whether they are enforceable under Missouri law.