Missouri Appeals Court Invalidates Arbitration Agreement for Lack of Consideration and Mutuality

Missouri Appeals Court Invalidates Arbitration Agreement for Lack of Consideration and Mutuality

The Missouri Court of Appeals for the Eastern District issued its latest ruling on arbitration agreements in Jimenez v. Cintas Corporation. In that case, the Court held that an arbitration agreement that lacks consideration and mutuality is unenforceable.

In Jimenez v. Cintas Corporation, Kathryn Jimenez signed an agreement at the time of her hire stating that both she and her employer would arbitrate any legal disputes that might arise between them. The arbitration clause contained a non-compete clause and the employer reserved the right to go to court, rather than before an arbitrator, to obtain injunctive relief to enforce the non-compete. Among other things, Jimenez signed an "Employee's Acknowledgement and Covenants." The relevant part of the agreement provided that certain claims were exempt from arbitration, in particular those in the "Non-Compete Provisions." Any dispute arising out of Jimenez's prohibition from:

  1. Disclosing confidential material and information,
  2. Competing against Cintas and
  3. Soliciting Cintas's customers and employees could be presented before any court by Cintas for injunctive relief.

After her employment was terminated, Jimenez 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.

The Missouri Court of Appeals closely scrutinized the employment arbitration agreement. According to the Court, the agreement lacked consideration. In Missouri, legal consideration is essential for the formation of any contract, including one for arbitration like the one at issue in this case. Consideration is created by either a promise to do or refrain from doing something or the transfer or giving up of something of value to the other party. The Court emphasized that in Missouri, a promise of future or continued at-will employment does not qualify as consideration because it is a unilateral agreement between the employer and employee.

In addition, 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. Here, the arbitration agreement lacked mutuality and reciprocity. The language in the arbitration agreement allowed Cintas to file for injunctive relief for any of the claims relating to exempted issues, such as non-compete and confidentiality issues. The agreement exempted Cintas alone from arbitrating certain claims and gave them discretion to litigate in court, while Jimenez was bound to arbitrate her claims. In Missouri, a bilateral contract requires "mutuality of obligation," as essential to the formation of a valid contract. In other words, neither party is bound unless both are bound. 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. The court ultimately invalidated the agreement based on the exception for the employer.

This case is the most recent illustration of a trend of Missouri appellate courts' dislike of arbitration agreements. While there is a strong federal law and policy in favor of enforcing arbitration agreements, buttressed by many federal court decisions across the country, that same federal law/policy states that the issue of whether an agreement to arbitrate actually creates an enforceable contract is a matter of state law of contract formation. As a result, employers seeking to enforce arbitration agreements have found an unfriendly audience in the Missouri judicial system.