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Menards’ Employee Arbitration Agreement is Rejected as “Illusory” by Missouri Court of Appeals
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The Missouri Court of Appeals for the Western District recently handed down a ruling that has broader implications for employers who utilize arbitration agreements in their employment contracts. In the case of Telissah Johnson v. Menard, Inc. (No WD 84138), the Court ruled the employer’s arbitration agreement was not enforceable because it included “illusory promises” with no valid consideration. Here is how the Court reached its decision and what it means for employers in Missouri and across the country.
Read more about this case at The Missouri Bar.
Case Background Information
About one month after Telissah Johnson began working for Menard, she submitted to HR a written complaint alleging race discrimination. Within two weeks, Telissah was terminated from her position at Menards. Shortly thereafter, she filed suit against Menard in the trial court.
Like all at-will Menards employees, Ms. Johnson had signed an Employee/Employer Agreement (EEA) that included a mandatory arbitration clause. The same agreement included a severability clause that would become highly relevant to the Court’s ruling. The portion of the severability clause that would come into play read, “…I understand that this Agreement cannot be modified except by the President of Menard, Inc.”
Citing the EEA, Menard moved to compel arbitration, which the trial court granted. In response, Johnson filed a writ of prohibition, requesting the Court of Appeals to overturn the trial court’s decision to force arbitration. After reviewing the case, the Court of Appeals issued a preliminary writ casting doubt on the arbitration agreement’s enforceability and ordered the trial court to change or further explain its decision to compel arbitration per the EEA.
When the trial court reconsidered this case, it denied Menard’s motion to compel arbitration. This led Menard to appeal the decision to the Missouri Court of Appeals, Western District.
The Court’s Decision and What it Means for Employers
It was The Western District Court of Appeals’ job to answer the central question: was Menard’s EEA enforceable? And if so, could Menard unilaterally decide a claim must go to arbitration, per the EEA?
The Court cited a recent Missouri Supreme Court Decision—Soars v. Easter Seals Midwest—to state that Menard could not enforce arbitration unilaterally. Additionally, the Court made it clear that promises must be binding in any valid bilateral contract.
In reference to the contract’s severability clause, the Court pointed out that Menard reserved the unlimited power to unilaterally modify any part of the EEA at any time, without notice to their employees. Thus, since Menard could theoretically eliminate the arbitration clause without notice, the Court refused to enforce it.
According to the Court’s decision, “…the arbitration agreement as a whole is founded on Menard’s illusory promise to arbitrate disputes, and, as such, it lacks consideration and is unenforceable.” In other words, relevant aspects of the EEA were considered invalid and Menard would not be able to force arbitration in this case.
It is important for Missouri employers to understand how this case impacts their own employment contracts. Menards attempted to protect itself from unwanted claims by giving itself unilateral power to compel arbitration and/or change provisions in the contract without notice. In this case, the Court ruled their contract went too far and was not enforceable.
Contract provisions like these may not be uncommon, and this ruling should convince all Missouri employers to revisit their employment agreements and make the necessary changes to ensure enforceability.
If you have questions about employment law, contracts, discrimination claims, or any other legal matters, reach out today. Hughes Lawyers specializes in a range of practice areas that pertain to employers and we have extensive experience defending employers in a variety of cases.
