Client Bulletin #548
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The Missouri Court of Appeals has struck down an arbitration agreement because it included a common clause requiring the employee to arbitrate all of her claims but did not require the company to arbitrate all of its claims.
In Jimenez v. Cintas Corp., the state Court of Appeals affirmed a trial court decision refusing to compel arbitration in a discrimination and harassment case. Plaintiff Kathryn Jimenez signed an agreement at the time she was hired by Cintas that required the arbitration of any dispute between the employee and the company. However, the arbitration provision contained one notable exception: it did not apply to any claim for injunctive relief brought by the company related to non-compete disputes.
After her termination, Ms. Jimenez filed suit, and Cintas tried to compel her to arbitrate, but the trial court refused to do so, and the Court of Appeals agreed.
The Court of Appeals found that the employment agreement (and the included arbitration clause) was not a valid contract under Missouri law for two reasons. First, a promise of "at-will" employment does not qualify as valid consideration, according to the Court, regardless of whether it is "new," "future," or "continued" employment because a promise of "at-will" employment is no promise at all. Thus, because "at-will" employment is not a legally enforceable relationship, it cannot support the creation of a binding contract.
Judge Kurt Odenwald, in a concurring opinion, disagreed with the majority finding that a promise of new (as opposed to continued) "at-will" employment could not be sufficient consideration to support a contract.
Second, the employer's "mutual" promise to arbitrate was not sufficient consideration because the arbitration clause did not apply to any attempt by the company to seek injunctive relief related to enforcing its non-compete agreement. The rationale behind the company's exception was probably not nefarious. If a company needs to stop an employee from breaching a non-compete agreement, then the employer typically needs to have the employee stop immediately. The arbitration process is simply too slow in such circumstances. But in this agreement, Ms. Jimenez was still required to arbitrate any claims she may have had arising from that same clause. In order for promises to be consideration for a contract, they must be mutually binding, and the Court found that this exception meant there was no "mutuality of obligation." The court also stated that the arbitration agreement effectively required the employee to arbitrate the disputes she was most likely to bring while allowing the company to litigate its most likely claims. Further, because the company could include any other related claims in a suit seeking injunctive relief, the court noted that the company could effectively litigate any claim based only on a bare allegation that the claims were somehow tied to the non-compete.
In short, because there was no mutuality of obligation, the Court found that no contract was formed and the employee was not required to arbitrate her discrimination and harassment claims.
It is important to note that, where the Federal Arbitration Act applies, the result could very well be different. Under federal law, agreements to arbitrate are favored and liberally enforced. However, the Court specifically found that the FAA did not apply to the Cintas agreement.
In light of the Jimenez decision, employers with operations in Missouri should review their arbitration agreements to determine whether they remain enforceable under Missouri law. If the promises are not exactly reciprocal, employers may want to consider offering additional consideration to ensure their agreements are enforceable.
About Constangy, Brooks & Smith, LLP
Constangy, Brooks & Smith, LLP has counseled employers on labor and employment law matters, exclusively, since 1946. A "Go To" Law Firm in Corporate Counsel and Fortune Magazine, it represents Fortune 500 corporations and small companies across the country. Its attorneys are consistently rated as top lawyers in their practice areas by sources such as Chambers USA, Martindale-Hubbell, and Top One Hundred Labor Attorneys in the United States, and the firm is top-ranked by the U.S. News & World Report/Best Lawyers Best Law Firms survey. More than 140 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Alabama, California, Florida, Georgia, Illinois, Massachusetts, Missouri, New Jersey, North Carolina, South Carolina, Tennessee, Texas, Virginia and Wisconsin. For more information, visit www.constangy.com.
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