Recently, the Washington Supreme Court invalidated an arbitration provisition that included arbitrations clauses in a labor agreement providing for a 14-day statute of limitations period, a two- and four-month limitations on back-pay, and a requirement that employees pay for half of the cost of arbitration.[i]
In this case, Garda, an armored truck company, employed drivers to pick up, transport, and deliver currency. Employees at each Garda facility were required to sign a labor agreement. On February 16, 2009, Garda’s employees filed suit for wage and hour violations. They maintained that they were not allowed meal and rest breaks as required by the Washington Industrial Welfare Act, RCW 49.12, and the Washington Minimum Wage Act, RCW 49.46. Garda answered and raised the arbitration clause in the labor agreement as an affirmative defense. The employees argued that the arbitration clause was unenforceable because several of its provisions were substantively unconscionable: a 14-day limitations period, two- and four-month limitations on back-pay damages (depending upon which labor agreement applied), and an arbitration cost-sharing provision that required the employees to pay 50% of the arbitration cost.
Generally, “a term is substantively unconscionable where it is overly or monstrously harsh, is one-sided, shocks the conscience, or is exceedingly callous.” Ultimately, the Court found that the 14-day limitations period, limitations on back-pay damages, and cost splitting provisions of the arbitration provision were all unconscionable.
- As to the 14-day limitations provision, the Court referred to its earlier decision in Gandee v. LDL Freedom Enters., Inc.,[ii] holding that a provision that shortened a limitation period from four years under the relevant statute to 30 days was unconscionable, and Adler v. Fred Lind Manor,[iii] holding that a shortening of the statute of limitations from three years to 180 days was substantively unconscionable. Instead, the Court found that the employees would have a three-year limitation period.
- As to the two- and four-month limitations on back-pay damages, the Court found these to be one-sided and unfairly favors Garda by significantly curbing what an employee can recover compared to what the employee could recover under a statutory wage and hour claim.
- As to the fee-splitting provision, the Court found that it effectively prohibited employees from bringing claims in the arbitral forum, especially given that the “unions” representing the employees had no funds to pay for arbitration. Although the provision in question was less harsh than that addressed in Gandee, the Court found that the imposition of costs was still problematic.
Severing the unconscionable clauses would have significantly altered both the tone of the arbitration clause and the nature of the arbitration contemplated by the clause. The Court found that little would be left of the arbitration provision. Consistent with the Court’s opinion in Gandee, the Court found that the unconscionable terms pervaded the arbitration agreement, thereby invalidating the provision. Thus, the Court found that the entire arbitration clause was substantively unconscionable.
[i] Hill v. Garda CL Northwest, Inc., 2013 WL 4857965 (Wash. Supreme Court, September 12, 2013).
[ii] 176 Wn.2d 598, 293 P.3d 1197 (2013).
[iii] 153 Wn.2d 331, 103 P.3d 773 (2004).