There are many reasons an employer may want to require arbitration of disputes with its employees. Arbitration can be (but is not always) less expensive than court litigation; arbitrations are not public and are often confidential; and an arbitration agreement can, when combined with a class-action waiver, effectively preclude employee class actions where the claims are not small. Earlier this month, the Washington Court of Appeals confirmed an employer’s right to require its employees to sign an arbitration agreement—even with respect to existing employees who had not signed any arbitration agreement as part of their accepting employment.[1]
In Mayne v. Monaco Enterprises, the plaintiff was hired by the defendant company (Monaco) in 1997. The plaintiff was not asked to sign an arbitration agreement when hired. In 2011, Monaco asked the plaintiff to sign an arbitration agreement. The plaintiff was given 30 days after signing to consult with an attorney and to opt out of the agreement. In 2013, the plaintiff signed a new arbitration agreement; this one provided that, “had the Employee not agreed to execute this Arbitration Agreement, the Company would not have agreed to employ the Employee.”
After his termination in 2013, the employee sued Monaco in superior court based on Monaco’s alleged promise of a promotion if he relocated to Spokane from Texas. The trial court granted Monaco’s motion to compel arbitration, and the employee appealed. The court of appeals affirmed the trial court’s order compelling arbitration but did so under the 2011 agreement, not the 2013 agreement.
The court’s decision turned on procedural unconscionability—in particular, on the process and circumstances surrounding the execution of the arbitration agreement and whether the employee had a “meaningful choice.”[2] At a minimum, to be enforceable, an employer-employee arbitration agreement should be simple, clearly labeled, and easily understandable, with an acknowledgment by the prospective employee that he/she has read and understood it.[3]
The court found the employee did not have meaningful choice under the 2013 agreement due to the threat of immediate termination if the employee did not sign. By contrast, under the 2011 agreement—even though it was an adhesion contract—the employee had 30 days to consider and opt out of the agreement. The ability to opt out provided a “meaningful choice.”
The court went on to discuss an employer’s right to choose an “arbitration-only work force,” and offered employers guidance about how to do so while offering “meaningful choice” to existing employees. The court stated that an employer could present an enforceable arbitration agreement to current at-will employees if the employer (1) notifies the employee of the policy and (2) takes “some action to ameliorate the coercive impact to ensure a voluntary decision.”[4] The court suggested that simply offering employees a reasonable time to sign the arbitration agreement before “voluntarily” leaving employment or some incentive in exchange for signing the arbitration agreement might create meaningful choice for those employees.
Although couched as a discussion regarding whether the at-will employee had meaningful choice as to whether to accept the arbitration agreement, Mayne effectively upheld an employer’s ability to require its workforce to agree to arbitrate disputes—and offered employers guidance about how to make those agreements enforceable. It is a must-read for employers in Washington wanting to require arbitration agreements of their current employees.
–Brandi B. Balanda
[2] This inquiry relates to procedural unconscionability. An arbitration agreement is unenforceable if it is procedurally unconscionable or substantively unconscionable (overly harsh or one-sided provisions in the agreement).
Brandi B. Balanda
Brandi has wide-ranging experience successfully litigating large, complex cases, from defending a senior executive against the largest trade secret claim asserted in Washington to prosecuting fraud, contract, and fiduciary duty claims related to the financing of major real estate development projects.