Mandatory Arbitration Provision Struck Down by the Washington Supreme Court

Seyfarth Synopsis: The Washington Supreme Court refused to enforce a mandatory arbitration agreement that was contained within an Employee Handbook. Because it was not a separately signed agreement, the Court held that the employee had no opportunity to review it prior to employment and thus never agreed to arbitration. The Court also ruled the agreement was both procedurally and substantively unconscionable.

In Burnett v. Pagliacci Pizza, Inc., the Washington Supreme Court held that a pizza delivery driver was not required to arbitrate his wage and hour claims.  Burnett (the named plaintiff in a putative class action lawsuit) did not have notice of the arbitration provision when he signed his employment agreement with Pagliacci Pizza, Inc., because the arbitration agreement was included in a separate employment handbook.

Before Burnett’s employment began, he attended a mandatory employee orientation and signed multiple forms, including a one-page “Employee Relationship Agreement,” which made no mention of arbitration or disputes.  The “Mandatory Arbitration Policy” (“MAP”) was included in Pagliacci’s 23-page employee handbook entitled “Little Book of Answers.”  Although Burnett was provided with a copy of the Little Book of Answers at orientation and was instructed to read it at home, the MAP was not listed in the handbook’s table of contents, and was placed in the “Mutual Fairness Benefits” section of the handbook.  

On October 20, 2017, after he was terminated, Burnett filed a putative class action alleging various wage and hour claims.  Pagliacci attempted to compel arbitration under its MAP.  The Court of Appeals determined that the arbitration provision was both procedurally and substantively unconscionable and therefore unenforceable. The Washington Supreme Court unanimously agreed and held as follows:

No Assent to Arbitration: Because Burnett was unaware of the arbitration provision and its incorporated terms when he signed the employee relationship agreement, he never assented to the arbitration provision.  Even if an arbitration contract existed between the parties, it was both procedurally and substantively unconscionable.

Procedurally Unconscionable: The agreement was procedurally unconscionable because Burnett did not have a meaningful choice - the key inquiry for finding procedural unconscionability. The employee agreement “did not mention arbitration, Pagliacci's arbitration policy appeared on page 18 of the 23-page handbook that Burnett received after he signed the employment agreement, and the arbitration policy was not identified in the handbook's table of contents.” Accordingly, Burnett did not have a reasonable opportunity to understand the provisions of the arbitration agreement before he signed the employment agreement at orientation.

Substantively  Unconscionable: The agreement was substantively unconscionable, because the MAP required employees to first submit their complaint through the company’s F.A.I.R. policy. The F.A.I.R. protocol provided no means for terminated employees to seek recourse and no substitute to supervisor review if the alleged wrongdoer was the supervisor. The F.A.I.R. policy also shortened the applicable statute of limitations (the statute of limitations is not tolled during the F.A.I.R. process and the duration of time that it takes to review complaints is entirely within Pagliacci’s control). For these reasons, the provision was one-sided and its “limitation provisions would bar any claim by the terminated employee . . . , an overly harsh result.”  This gave Pagliacci an unfair advantage and was substantively unconscionable.

This holding serves as another reminder that employers must clearly and carefully present arbitration agreements at the outset of employment or risk the court holding them unenforceable.  If you have any questions about your existing process or want to implement a new one, please contact the authors.