Court Limits Arbitration Clause
The Washington State Court of Appeals recently held that an arbitration clause in an employment agreement was partially unenforceable because it required the Washington-based employee to arbitrate his case in Denver, and because the clause entitled the employer to be awarded its attorney’s fees if the employer won. The decision, Walters v. A.A.A. Waterproofing, 151 Wn. App. 316, 211 P.3d 454 (2009), came about because the employee sued the employer in King County Superior Court in 2002, claiming that the employer violated the state overtime laws. The employer responded by arguing that the case belonged in arbitration in Denver, which then resulted in seven years of litigation regarding where the case should be heard.
The employee claimed that the reciprocal attorney’s fees clause was unconscionable because the risk of having to pay the employer’s arbitration expenses and attorney’s fees would deter employees from seeking to vindicate their statutory rights. By way of contrast, the overtime statute, RCW 49.60.030(2), provides for an award of costs, including reasonable attorneys’ fees, to the employee if the employee wins, but does not provide for the employee to pay the employer’s attorney’s fees if the employer wins. The Court of Appeals agreed with the employee on this issue and held that “in the context of an employee’s suit where the governing statutes provide that only a prevailing employee will be entitled to recover costs and fees, a reciprocal attorney’s fees provision is unconscionable and, therefore, unenforceable.”
Turning to the question of whether the employee could be forced to go to Denver for the arbitration, the Court of Appeals held that it would not adopt an across-the-board rule, but would look at the issue on a case-by-case basis. The court then reviewed the employee’s household income and expenses and found that the costs of arbitration in Denver would be prohibitive for the employee. The employer offered to pay for airfare for the employee and his attorney, but the court found that the expenses would still be prohibitive for this particular employee.
After addressing these issues, the court held that it could enforce the remainder of the contract without the unconscionable language. The court noted that the contract had a severability clause and then severed the unconscionable provisions by omitting “Denver, Colorado” and by omitting two sentences that directed the arbitrator to award attorney’s fees and costs in a manner that conflicted with the overtime statute.
The end result was that the employee still had to arbitrate his overtime claim, but that it would be arbitrated in Washington State, not Denver, and the employee would not have to pay the employer’s attorney’s fees if the employee lost his case.
This case has some valuable lessons: The Washington courts favor arbitration clauses, even in employment contracts, and will enforce them to the extent that they are not unconscionable; a severance clause will assist the court in separating any unconscionable parts from the enforceable parts; and that the parties must have been pretty determined to have this issue resolved by the courts to keep litigating it for seven years.
The information in this article is not legal advice, and does not create an attorney-client relationship. Also, subsequent developments in the law may cause it to become inaccurate after it was written.
Tags: Arbitration, Employment Contracts
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