Hold the Arbitration - Washington Appellate Court Finds Pizza Delivery’s Arbitration Policy Unenforceable.
Seattle, Wash. (June 27, 2019) - In a recent reported decision, a Washington appeals court addressed the requirements of enforcing an arbitration policy that is an employment handbook. The court’s reasoning provides a number of reminders for employers who want to arbitrate employment claims.
Pagliacci’s Arbitration Policy
Pagliacci Pizza is a popular pizza delivery company in Seattle. Its delivery drivers are often seen zig-zagging through Seattle’s maze of city streets, delivering various kinds of pizza in boxes containing an iconic depiction of Washington’s favorite fictional creature, Big Foot, carrying a pizza.
Pagliacci requires that each new driver sign an Employee Relationship Agreement (ERA) when they begin work. The ERA states that the driver must read, and is bound by, Pagliacci’s “Little Book of Answers” (Little Answer Book). The Little Answer Book contains a mandatory arbitration policy. It also contains Pagliacci’s “Fair and Amicable Internal Resolution Policy.” The F.A.I.R. policy, as it is called, requires the driver to submit their claim to two different Pagliacci employees, including the driver’s supervisor. The Little Answer Book states the driver cannot commence arbitration until the driver has attempted, and failed, to resolve the claim under the F.A.I.R. policy.
A former driver commenced a wage-and-hour putative class action against Pagliacci in Washington state court. After its motion to compel arbitration was denied by the trial court, Pagliacci appealed to the Washington Court of Appeals, which held that the arbitration policy was unconscionable and, so, unenforceable.
The court explained that two types of unconscionability - procedural and substantive - render a contract provision unenforceable. The first consists of a lack of meaningful choice to enter into the provision. It can exist when there is a lack of equal bargaining power, a contract of adhesion, and the clause is buried in a maze of fine print. Substantive unconscionability exists when a term is overly harsh and one-sided. According the court, the Pagliacci arbitration policy was procedurally and substantively unconscionable.
Addressing procedural unconscionability first, the court concluded the arbitration policy was a contract of adhesion, and the manner in which Pagliacci obtained the driver’s agreement was “suspect.” The court found that the driver was not given a meaningful opportunity to read the arbitration policy before the driver signed the ERA. Instead, he was required to read the Little Answer Book after he signed the ERA. And the arbitration policy was buried in fine print on page 18 of a 23 page booklet in the same font and formatting as the other provisions of the booklet.
The court also questioned whether the arbitration policy constituted an effective waiver of the driver’s right to a jury trial since it did not state that the driver was giving up this right. However, the court concluded that it did not need to decide this issue since the clause was procedurally unconscionable.
The court also concluded that the policy was substantively unconscionable due to the F.A.I.R. policy for two reasons. One, it precluded former employees from commencing arbitration since they no longer worked for Pagliacci and so did not have a supervisor to whom they could submit their claim. Two, it shortened the limitations period for commencing arbitration since it did not contain a time requirement for the F.A.I.R. policy or allow the driver to bypass it if needed to avoid the statute of limitations.
Although the court did not take strike down the arbitration policy merely because it was incorporated by reference into the ERA, this approach increases the likelihood of a procedural unconscionability argument because the arbitration policy is harder to find. Instead, employers should use a separate, stand-alone arbitration agreement signed by the employee.
In addition, because arbitration agreements are typically contracts of adhesion, employers should ensure they are understandable (i.e. written in plain English) and that they expressly state that the employee is waiving their right to a jury trial. Also, the employee must be given a meaningful opportunity to review the agreement before beginning work. The employee should not see it on the first day of work but instead be provided with it after the employee has accepted a job offer, but before beginning work. And the employee should be provided with the name of someone to contact with questions about the policy.
Finally, while it is relatively common to require non-binding mediation or other forms of conciliation processes prior to arbitration, that requirement should not impinge on the employee’s rights. Requiring mediation or a conciliation process and stating that the time this process takes does not start the employee’s clock to commence arbitration preserves the employee’s rights while providing employers with a good opportunity to resolve the claim without arbitration.
Benjamin J. Stone, Partner