United States: Washington Supreme Court Strikes Down Certain Provisions of Arbitration Agreements But Upholds Basic Requirement to Arbitrate

In two recent cases, the Washington Supreme Court limited the enforceability of certain provisions in arbitration agreements. In both Alder v. Manor and Zuver v. Airtouch Communications, employees sought to avoid arbitrating their disputes with employers, even though they had signed arbitration agreements. In both cases the employees successfully argued that certain terms of the arbitration agreements were unfair to employees and therefore unenforceable. Importantly, the court "severed" the unenforceable provisions and left the underlying arbitration agreements intact. The key lesson from these cases, which are summarized below, is that arbitration agreements must be carefully drafted so that employees’ substantive rights are similar to what they would have in the court system. Also, arbitration agreements must be presented to employees in such a way that the employer is not seen as attempting to gain an "unconscionable" advantage in the event of a dispute.

In Zuver, an employee with fibromyalgia sued her former employer alleging disability discrimination. Since the employee had signed an agreement to arbitrate all claims, the employer attempted to prevent the employee from bringing an action in court. The agreement included the following provision: "all arbitration proceedings, including settlements and awards, under the agreement will be confidential." Washington’s Supreme Court refused to enforce this provision because it "hampers an employee’s ability to prove a pattern of discrimination or to take advantage of findings in past arbitrations." In the court system, employees are often entitled to conduct discovery concerning past employment lawsuits at the company that may relate to their case.

In Alder a nursing home maintenance worker hurt his back and was later fired. When he brought a discrimination lawsuit, the nursing home sought to enforce the employee’s signed agreement to arbitrate. The agreement included a provision stating that the employee needed to seek arbitration no later than 180 days after the event that first gave rise to the dispute. Washington law normally affords employees three years to sue for discrimination. For this reason the Supreme Court of Washington held that this provision unfairly limited the employee’s rights and was therefore unenforceable.

In each case, the Court analyzed whether provisions of the arbitration agreements were substantively or procedurally "unconscionable." That is, whether the terms of the contract or the relative negotiating power was too one-sided. Notably, the provisions the court struck down took away rights employees have in the court system.

Employers that use arbitration agreements should review them for one-sided terms that may be struck down. Also, employers should make sure that arbitration agreements are clearly written, and are presented to the employee in such a manner that the employees cannot claim they coerced into signing. For example, courts disfavor giving employees little time to consider the agreement, telling employees that they will be terminated if they do not sign the agreement, or burying the agreement to arbitrate "in a maze of fine print." Optimally, the arbitration agreement should be attached to the employment offer letter with an explanation that signing it is a requirement. Similarly, the offer letter should also inform the potential employee of other requirements, such as non-competition agreements, confidentiality agreements, employee handbooks, etc. Of course, the offer letter should also include a statement of "at-will" employment.