Is the Arbitration Provision in Your Employment Contract Enforceable?

Many employers require their employees to execute employment agreements, often containing confidentiality and non-compete clauses, which contain provisions requiring arbitration of any claim which an employee might file against the employer.  However, unless these provisions are carefully drafted, the arbitration provisions may be found unenforceable.

In Caldwell v. Unifirst Corp, et al. issued on October 27, 2020, the Missouri Court of Appeals, Eastern District, upheld a decision by an arbitrator holding the arbitration clause at issue there to be unenforceable due to a lack of consideration.  The Court in Caldwell agreed with the arbitrator that the arbitration clause in the employment agreement Caldwell signed with Unifirst was invalid for lack of mutual consideration because the employer had reserved the right to seek injunctive relief in court in the event the employee violated his non-compete obligations.  Thus, while the employee was required to arbitrate all claims he might have, the employer would not be required to arbitrate its claims for breach of the non-compete clause, the type of claim most likely to be pursued by the employer against a former employee.  As a result, the arbitrator (and the Court) held that the consideration offered by the employer was illusory, such that the agreement to arbitrate was void.

It is common that employment and non-compete agreements which provide for arbitration also allow the employer to seek an injunction in court.  This makes sense because an injunction issued by an arbitrator is not self-executing.  It would still have to be enforced by a court.  However, if your arbitration clause contains such a provision, it is now unenforceable in Missouri.  Further, the Court in Caldwell held that if the contract is with a Missouri employee, its enforceability will be determined by Missouri law.

This case, and the precedent cited by it, make clear that if an employer reserves the right to go to court to enjoin an employee from violating a non-compete or confidentiality agreement that, at least in Missouri (and unless this decision is overturned by the Missouri Supreme Court), the arbitration agreement will ultimately not be enforceable.

Often employers create their own employment or non-compete agreements or copy something that a friend uses for their business or that the employer found on the internet.  However, the Caldwell case is but one example of the many pitfalls which can either render an arbitration agreement between employers and employees unenforceable or more time consuming and expensive to enforce.

Therefore, to avoid such pitfalls, employers are advised to seek competent counsel, such as our employment attorneys at Danna McKitrick, to draft their non-compete and confidentiality agreements.

Posted by Attorney David R. Bohm. Bohm is an experienced litigator working with health care, government, and business clients on employment, intellectual property, and complex contract issues. He is also skilled in alternative dispute resolution as a means to solve disagreements without litigation.

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