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Mar 16, 2015

Employers Beware: The Missouri Court of Appeals Strikes Another Blow Against Enforcement of Employee Arbitration Agreements

It is time for Missouri employers to re-evaluate their employment agreements to see if the arbitration clauses, or the agreements as a whole, are still enforceable.  Notwithstanding the U.S. Supreme Court’s repeated endorsement of the enforceability of arbitration agreements, the Missouri Court of Appeals for the Eastern District has elevated to a whole new level the Missouri courts’ hostility toward arbitration clauses in employment agreements, in the case of Jimenez v. Cintas Corporation.

The main issue stems from a common practice in employment agreements.  Employment agreements routinely contain arbitration clauses wherein the employee and employer have mutual obligations to seek arbitration in lieu of court action.  The same agreements often contain non-compete provisions allowing the employer to seek injunctive relief in the courts for violations.  The rationale is simple: if an employee leaves and begins to compete directly in contravention of the agreement, injunctive relief is the best and fastest method to stop the prior employee’s actions, and prevent irreparable harm.  Arbitration would be too slow to address the problem before damage is done to the employer.  The Jimenez court found these two clauses may result in the arbitration clause being unenforceable.  Going even further, the Jimenez court chose to address the issue of consideration based upon promises of at-will employment and expanded the Supreme Court’s definition, again continuing the trend of other Missouri courts in restricting arbitration clause and employment agreement enforceability in general.

In Jimenez, Cintas (the employer) sought to compel arbitration of Kathryn Jimenez’s employment discrimination claim.  The employment agreement signed when Jimenez was hired contained an arbitration clause, which the court noted, “on its face…plainly states that both parties must arbitrate…”  Nevertheless, the court refused to compel arbitration on the basis that there was no “mutuality” in the agreement and more significantly, that there was no “consideration” for Jimenez’s agreement to arbitrate based upon the promise of new at-will employment.

Missouri law requires mutuality of obligations to enforce an agreement to arbitrate. In Jimenez the court found the arbitration clause itself did contain mutual promises to arbitrate.  However, the court looked at other terms in the agreement, and specifically the non-compete clause.  Within the non-compete clause was an exception to arbitration solely for the benefit of the employer.  The employer retained the right to seek enforcement through injunctive relief in the courts rather than through arbitration.  The Jimenez court, reading the two clauses together, held that since the employer could sue in the courts to enforce the most common claim they would have against the employee, but the employee did not retain the same right, there was no mutuality of agreement and the arbitration clause was void.

The court could have upheld the trial court’s decision not to enforce the arbitration clause solely on the basis of mutuality; however, the court took one step further, finding the promise of new at-will employment did not constitute consideration sufficient to create a binding agreement.

In August of 2014, the Missouri Supreme Court in the case of Baker v. Bristol Care, Inc., held that the promise of continued at-will employment does not constitute valid consideration to form a binding arbitration agreement. Where an employee has already been hired and the employer later asks or requires that employee sign an arbitration agreement in order to keep his job, there is no consideration because there is no promise to do anything the employer was not already doing.  The Supreme Court did not address the question or whether or not a promise of new at-will employment could constitute adequate consideration.

As noted in Judge Odenwald’s concurrence in Jimenez, “no Missouri case has held that an initial offer of at-will employment is illusory or lacks the requisite mutuality of promise to provide consideration for the agreement.”  Consideration requires either a promise to affirmatively do or refrain from doing something or the transfer or giving up something of value.  Since a promise of new employment is a promise to do something the employer is not legally required to do, the promise should constitute sufficient consideration according to Judge Odenwald.  This opinion is consistent with the Missouri Supreme Court ruling in Baker which only addressed a continued promise and not a new promise of at-will employment.

The majority in Jimenez disagreed.  In the opinion of the court “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.”  In reaching this decision, the court makes it clear that there is no form of “at will” employment which can result in a valid arbitration agreement (or non-compete agreement for that matter) without additional consideration.  This holding distinguishes Missouri from the overwhelming majority of other states that have addressed this issue, and deals a significant blow to the rights of the employers in the state of Missouri.

Cintas is seeking review of the case by the Missouri Supreme Court.  But meanwhile, in the wake of Jimenez, Missouri employers must consider the impact on employment agreements where the terms of the arbitration clause and the non-compete clause do not match.  Unless the Supreme Court accepts this case for review and modifies the Court of Appeals’ ruling, Missouri courts are likely to strike down any arbitration clause whose obligations of the employer and employee are not identical in all regards in every clause of the agreement.  The Jimenez decision affects not only arbitration clauses, but has implications for all agreements with employees such as non-compete and non-solicitation agreements if the only consideration was a promise of at-will employment, whether new, future, or continued.   A review of employee agreements is essential along with a consideration of whether or not it would be appropriate to offer at-will employees some form of payment or something of value to constitute consideration for executing arbitration agreements, non-compete agreements, or any other employment agreements.

View the full opinion here.