The New York Times just ran a series of articles discussing the prevalence of arbitration agreements in America. The articles criticized the arbitration agreements that corporations require individuals to sign, including arbitration agreements with employees, citing a lack of bargaining power. According to the Times, the prevalence of arbitration agreements constitutes nothing less than the usurpation of the constitutionally guaranteed right to jury trial. The articles were also critical of recent Supreme Court decisions upholding arbitration agreements under the Federal Arbitration Act. While not saying so explicitly, the articles' message appears to be that these decisions resulted from a concerted and well-funded campaign by corporations and a Supreme Court sympathetic to their interests.
Truth is, for many employment cases, arbitration is good for both the employer and the employee. Having a case heard by a professional who is trained and experienced in the messy job of resolving complicated employment disputes can be better for both parties than leaving the matter in the hands of 12 people who couldn't get out of jury duty. And the fact that arbitrations (unlike court proceedings) are not a matter of public record (and so cannot be found on the internet) may be good not only for the employer accused of discrimination or retaliation but for the employee also. Employees should not want the world to know about the sexual relationships or disputes they had with their boss, that they have a disability, that they were fired because they were bad at their jobs, or even that they are sufficiently litigious that they sue prior employers.
But arbitrations are no cure-all for employers either. They can be as time-consuming and disruptive as litigation, and sometimes they can be a lot more expensive. And if the employer is defending a case with a good legal defense but bad facts, a trial judge may be preferable to an arbitrator who can't get reversed on appeal. As with so many things in life, the right answer to the question whether an employer should try to enforce an arbitration agreement for a case is "it depends."
If, after deliberating the issue, the employer decides to arbitrate the dispute, the employer must be prepared to defend its arbitration agreement in court since the employee will likely claim it is unenforceable. Fortunately, state and federal law strongly favor the enforcement of arbitration clauses. Generally, an arbitration clause will be presumed valid unless the employee can show that the agreement is "unconscionable" for "procedural" or "substantive" reasons.
For example, in Washington State, an arbitration agreement is procedurally unconscionable if the employee is given no meaningful choice. Adler v. Fred Lind Manor, 153 Wn.2d 331, 347 (2004). To establish procedural unconscionability, however, a plaintiff must prove more than the fact that the agreement was an "adhesion contract" offered to the employee on a take-it-or-leave-it basis. Adler, 153 Wn.2d at 347. Courts will examine whether the agreement was hidden "in a maze of fine print," the employee was given time to understand the agreement, his or her questions were answered, and whether he or she was not threatened with discharge if he or she didn't sign the agreement. Romney v. Franciscan Med. Grp., 186 Wn. App. 728, rev. denied, 2015 Wash. LEXIS 1164 (2015). In addition, the court will ask whether the employee had signed multiple arbitration agreements during their employment since that would be evidence that the agreement was not procedurally unconscionable. Id.
An arbitration clause is substantively unconscionable if it is "overly or monstrously harsh, is one-sided, shocks the conscience, or is exceedingly calloused." Zuver v. Airtouch Comm., 153 Wn.2d 293, 303 (2004). Examples of substantively unconscionable arbitration clauses are:
- Drastically cutting the amount of time an employee has to bring a claim. In Hill v. Garda, 179 Wn.2d 47, 55 (2013), for example, the court found unconscionable an arbitration clause that required the employee to commence arbitration within 14 days when by law the employee had three years to commence suit.
- Severely limiting the employee's right to recover damages. In Zuver, 153 Wn.2d at 318, the court found unconscionable an arbitration clause that said that the employee had waived his or her right to seek exemplary or punitive damages. Under the wage and hour statute at issue in that case, the employee was entitled to double damages for not being paid wages he was owed.
- Requiring that the employee split the costs of the arbitration if the costs are prohibitively high given the employee's lack of funds. Evidence that no other employees had ever commenced arbitration will be evidence that the costs effectively prevent the employees from seeking redress. Hill, 179 Wn.2d at 55. But an agreement that contains a proviso that the employer will pay the fees if the employee cannot renders the arbitration requirement enforceable. Romney, 186 Wn. App. at 746.
- Whether the employer preserved for itself the ability to go to court while limiting the employee to arbitration if those provisions are so significant as to render the obligation to arbitrate "one-sided." Zuver, 153 Wn.2d 317 n.16
- A confidentiality clause that effectively prohibits the employee from proving his or her case through a pattern of illegal activity. Romney, 186 Wn. App. at 744-45.
If parts of an arbitration agreement are unconscionable, the whole agreement is not necessarily tossed. The general rule in Washington is that the unconscionable provisions will be crossed out and the remaining provisions enforced. But that is not always the case. If "little would be left of the arbitration agreed to by the parties" following removal of the unconscionable provisions, the employer will be forced to litigate the case. Hill, 179 Wn.2d at 58.
In sum, if the arbitration agreement is understood by the employee, does not force the employee to give up valuable rights, and is not cost-prohibitive, it should be enforceable. But whether it should be enforced in a particular case is a question that employers should consider carefully.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.