Attorneys counseling Washington employers on mandatory arbitration programs do not have an easy task. They must consider the benefits and risks of the arbitration process and the effect arbitration agreements may have on employee morale. Additionally, attorneys counseling employers must consider the enforceability of arbitration agreements.
On the other hand, attorneys representing employees who have signed arbitration agreements and desire a judicial forum must determine if the agreement is binding or if, instead, the agreement is procedurally or substantively unconscionable.
The implementation of a valid arbitration agreement requires consideration of two components. First, the agreement must define what types of claims may be submitted to arbitration. Second, the agreement must comport with standard Washington contract law governing formation of a valid and enforceable agreement.
Arbitrable Claims
Most, but not necessarily all, claims arising out of an employment relationship may be submitted to arbitration by agreement. This includes Title VII discrimination claims.1 In most circumstances, the Federal Arbitration Act (FAA) specifically governs arbitration agreements involving employment.2 The Washington Uniform Arbitration Act does not apply to employment agreements.3
However, a June 2006 National Labor Relations Board (NLRB) decision may change the breadth of possible arbitration claims. In U-Haul Co. v. California,4 the Board ruled that employees cannot waive their right to file an NLRB charge. The Board reasoned that an employer's mandatory arbitration policy, which did not reference the National Labor Relations Act and did not on its face seek to limit an employee's right to file a charge with the NLRB, nonetheless unlawfully interfered with this right5 because the policy did not specifically and explicitly inform employees they still had the right to file NLRB charges.
Based on its findings, the Board ordered the employer to: (1) rescind its arbitration policy at all facilities where it was in effect; (2) post remedial notices at the facilities where the policy was in effect; (3) remove from its files all unlawful waivers by employees; and (4) notify in writing its present and former employees who executed such waivers that the waivers would not be used in any manner.
Significantly, the U-Haul case involved a claim against a non-union employer. Even if a U.S. Circuit Court overturns this decision, the NLRB may still adopt the rationale from U-Haul in other regions. Unless the NLRB adopts an alternate position or the Ninth Circuit rejects the NLRB's rationale, most currently existing arbitration agreements in Washington would need to be revised or run the risk of drawing an unfair labor practice charge and rescission of the company's arbitration policy.
While the FAA still has broad application, employers and employees should consider the potential ramifications of the U-Haul decision on arbitration agreements.
Contractual Considerations
The FAA requires that arbitration agreements satisfy state law requirements for a valid contract. Under Washington law, contracts must be "conscionable," supported by consideration, and executed absent fraud, duress, mistake and lack of capacity. Unconscionability and lack of consideration are the most common hurdles to enforcing an arbitration agreement.
In Washington, a contract is unconscionable when the manner in which it was negotiated ("procedural unconscionability") and the terms of the agreement ("substantive unconscionability") unfairly favor the drafting party, who is presumed to be in a superior bargaining position. Under Washington law, it may not be necessary to show both procedural and substantive unconscionability to invalidate an arbitration agreement. "Substantive unconscionability alone can support a finding of unconscionability."6 The courts have not yet determined whether procedural unconscionability alone can support a finding of unconscionability.
If the party seeking to enforce the arbitration agreement can show the agreement is conscionable and supported by consideration, the agreement will likely be upheld. If the party opposing enforcement can show unconscionability or lack of consideration, the agreement may be struck. Where the court finds only selected provisions to be substantively unconscionable, the court may strike the offending provisions and leave the crux of the agreement in place. However, if there are numerous offending provisions, the court may choose to strike the entire agreement.7
Questions for Arbitration Agreements
When was the agreement entered into? Looking at the timing of the agreement can help to determine if there has been adequate consideration. If the employee is a new hire, employment itself will likely serve as adequate consideration. Similarly, for contractual employees, a renewal or extension of the contract would be sufficient. For current employees not covered by a contract, it is unclear whether continued employment is sufficient consideration for the agreement.
In Labriola v. Pollard Group Inc., while distinguishable as a non-compete case, the court found that continued employment alone was insufficient consideration for a non-compete agreement.8 While the law is unclear, giving an existing employee a raise, a bonus or additional vacation days may satisfy this requirement.
Is the agreement limited to only the employee's claims? Some employees have argued that arbitration agreements are substantively unconscionable when they apply only to disputes brought by employees and not to disputes brought by the employer. Employ-ers should evaluate whether their agreements might be challenged as unilateral.
Does the agreement limit the period in which the employee can bring a claim? In Adler v. Fred Lind Manor, the court rejected a 180-day limitation period in an arbitration agreement, finding that the limitation period unreasonably favored the employer.9 However, the court left open the issue of whether a limitations period between 180 days and three years might survive scrutiny.
Does the agreement require confidentiality? The Washington Supreme Court has found that confidentiality provisions in arbitration agreements impermissibly favor the employer and are, therefore, substantively unconscionable.10
How are the fees and costs structured? In Adler, the Washington Supreme Court rejected a cost-sharing provision in an arbitration agreement, but recognized that cost sharing is not per se unconscionable in Washington. The party advocating unenforceability must show that arbitration is cost-prohibitive because the employee cannot afford to pay the fees for the particular arbitration.11
Does the agreement limit the employee's remedies? In Zuver v. Air-touch Communications, the Washing-ton Supreme Court ruled that an arbitration provision may be stricken as unconscionable where it prevents the parties from recovering remedies in arbitration that would be available in court. However, the agreement on which the Zuver decision was based only limited the employee's remedies, not the employer's. The court left open the question of whether limiting remedies would be acceptable if both parties' remedies are limited.
These are just a few of the questions an attorney must ask when evaluating the viability of an arbitration agreement. Arbitration agreements can be an effective means of resolving disputes between employers and employees, but are frequently subject to intense scrutiny. Staying abreast of the changes in the law and appropriately revising arbitration agreements is the only way to ensure that, when the time comes to arbitrate a claim, the company's arbitration agreement will be upheld. n
Laurie L. Johnston is an attorney with Jackson Lewis LLP in Seattle and can be reached at 206-405-0404. Jackson Lewis LLP is a national law firm with 24 offices, whose attorneys focus exclusively on defense of management in labor and employment issues.
1 EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742 (9th Cir. 2003) (en banc).
2 Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 894Ð95 (9th Cir. 2002).
3 RCW ¤ 7.04A.030(4).
4 U-Haul Co. v. California, 347 NLRB No. 34 (2006).
5 Sections 8(a)(1) and (4) of the Act.
6 Adler v. Fred Lind Manor, 153 Wn.2d 331, 103 P.3d 773 (2004).
7 Id. at 359.
8 Labriola v. Pollard Group Inc., 152 Wn.2d 828, 100 P.3d 791 (2004).
9 Adler, 153 Wn.2d at 337.
10 Zuver v. Airtouch Communications, 153 Wn.2d 293, 103 P.3d 753 (2004).
11 See also Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 92 (2000).
