Court of Appeals Affirms that At-Will Employment Is Not Sufficient Consideration for an Arbitration Agreement, Refuses to Change Law

ABSTRACT: The Missouri Court of Appeals for the Southern District upholds denial of an employer's motion to compel arbitration ruling that at-will employment is insufficient consideration to support an arbitration agreement and denying employer's request to find that, in accordance with federal policy, at-will employment should be sufficient consideration for an arbitration agreement.

In Wilder v. John Youngblood Motors, Inc., the trial court had denied the employer’s motion to compel arbitration of its former employee’s claim for wrongful termination, and the employer appealed. The Circuit Court ruled that at-will employment was the only consideration given for the agreement to arbitrate, and Youngblood therefore failed to demonstrate sufficient consideration for the agreement between the parties to arbitrate.  Youngblood subsequently appealed this ruling arguing that mutual consideration between the parties existed, and, regardless, the Court should find that at-will employment is sufficient consideration for an agreement to arbitrate in accordance with federal policy favoring arbitration agreements and a tension in Missouri law providing that at-will employment provides sufficient consideration for non-arbitration provisions.  The Court of Appeals affirmed the Circuit Court’s ruling.

Facts

Plaintiff Stephanie Wilder filed a Petition alleging wrongful termination for reporting alleged wire fraud by her employer, Youngblood.  Wilder was an at-will employer, but at the time of hiring she executed an “Agreement for Binding Arbitration” as a condition of her employment.  The Agreement bound Wilder and Youngblood to pursue arbitrations to resolve any claims or disputes arising in the course of her employment, with some exceptions.

Wilder worked for Youngblood for approximately 18 months but was terminated after reporting alleged wire fraud by Youngblood.  Wilder subsequently filed her lawsuit for wrongful termination and Youngblood filed an answer and motion to compel arbitration, citing the Agreement.  Wilder argued that the Agreement was “unconscionable,” lacked consideration and was therefore unenforceable.  Youngblood subsequently appealed.

The Arbitration Agreement Lacked Mutuality of Consideration

Youngblood argued that the trial court erred in denying its motion to compel arbitration because the Agreement was properly supported by mutual consideration.  The Court of Appeals sided with the Circuit Court’s assessment that at-will employment is insufficient consideration for the Agreement.

Additionally, the Court of Appeals agreed with the Circuit Court’s finding of a lack of mutuality with respect to the claims that were exempted from arbitration.  Employer Youngblood had the opportunity to exempt certain potential claims from arbitration (“breach of trust, use or dissemination of confidential information, unfair completion, disclosure, or use of trade secrets”), but Wilder was prohibited from avoiding arbitration except where arbitration was forbidden by law. The Court noted that claims for unemployment benefits and workers’ compensation benefits, exempted from arbitration under the Agreement, were areas already prohibited from arbitration by law as jurisdiction for these areas is vested with specialized administrative tribunals.

The Court was not swayed by Youngblood’s argument that, as consideration for the Agreement, it was foregoing its ability to bring common law tort claims.  The Court noted that Youngblood, in bringing the causes exempted from arbitration in the Agreement, could also bring these common law claims in the event they “relate” to the potential claims exempted from arbitration.  Wilder did not have the same opportunity, and therefore mutual consideration was absent.

Youngblood also pointed to conditioning Wilder’s employment upon execution of the Agreement, a provision in the Agreement calling for it to pay the costs of arbitration if invoked, and Wilder’s continued employment and salary all as independent consideration sufficient to meet the mutuality requirement.  The Court rejected all three arguments:  1) reiterating that at-will employment is insufficient consideration for an agreement to arbitrate, 2) the agreement to pay arbitration costs was obviated by a provision calling for costs to be awarded to the prevailing party, and, 3) although continued employment could be sufficient consideration for a restrictive covenant such as an agreement not compete, agreements to arbitrate are fundamentally different restrictive covenants, and enforced differently.

Accordingly, the Court found Youngblood’s arguments on mutual consideration unavailing and affirmed the Circuit Court’s ruling denying the motion to arbitrate.

The Court Refused Youngblood’s Federal Policy Argument

Youngblood pointed out that at-will employment was sufficient consideration in some employment agreements, but, under Missouri law is insufficient for arbitration agreements.  Youngblood argued that, because at-will employment is sufficient consideration for non-arbitration provisions, Missouri law should be changed to allow at-will employment to be sufficient consideration for arbitration agreements as well.  The Court refused to change the law, noting that the Court of Appeals should not “make the law” but should only “correct errors” and an argument to change the law should be addressed to the Supreme Court.

Conclusion

Agreements to arbitrate based upon at-will employment will continue to be found unenforceable by the Court as lacking sufficient consideration despite at-will employment providing sufficient consideration for other non-arbitration provisions.  This tension in Missouri contract law is notable.