Closing the Door to Unconscionable Employment Arbitration Clauses


Part I of a two-part article examining important changes interpreting CBAs

By Gregg Bertram

In light of the August Washington Supreme Court decision in the wage-and-hour suit of Hill v. Garda CL Northwest Inc., it’s important to take a step back and look at the Court’s earlier en banc opinion in that case that questioned the characterization of the plaintiff’s labor agreements as collective bargaining agreements.

That iteration of Hill, 308 P.2d 635 (2013), voided employment agreements containing arbitration clauses that the court deemed unconscionable.

Employee associations may not have understood the impact of the agreements

Sometime prior to 2009, employee associations of security personnel of the Garda security firm negotiated agreements that included clauses on the use of arbitration.  The employee “associations” in question had neither the legal nor financial clout of labor unions, and the draconian terms of the arbitration clauses underscored the associations’ lack of negotiating skill and/or bargaining power.  The affected employees eventually obtained class certification and, in August of this year, the Washington Supreme Court in another en banc opinion addressed the applicable calculation of damages — a topic for a subsequent article.

Specifically, the disputed arbitration clauses purported to create a mere 14-day limitations period for employees to bring wage and hour claims rather than the three- or six-year period provided under Washington law. The challenged clauses also sought to limit back pay claims to two or four months depending upon the applicable agreement.  Last, these clauses also specified that a claimant employee had to share the cost of the arbitrator and other expenses of arbitration.

Relying upon precedent, the court had no difficulty in finding unconscionability concerning each of the above terms and conditions [eg. Gandee v. LDL Freedom Enters, Inc., 176 Wn.2d 598 (2013)].

Who determines arbitrability if it’s not in the contract? The courts

Importantly, the disputed arbitration clauses appeared to be silent as to who determined the issue of arbitrability.  In Washington if the arbitration clause doesn’t refer to arbitration rules expressly authorizing the arbitrator to adjudicate arbitration jurisdiction, this issue is the domain of the courts. In addition, the arbitration rules of the American Arbitration Association and JAMS confer the power to determine arbitration jurisdiction to the arbitrator unless otherwise agreed.  [See AAA Employment Arbitration Rule 6(a)(b); JAMS Employment Arbitration Rule 11(b)].  Drafters of arbitration agreements must pay careful attention to this jurisdictional issue in anticipation of later challenges.

Garda’s arguments that the Federal Arbitration Act (FAA) preempted the Washington Supreme Court’s scrutiny of the terms of these arbitration clauses were rejected. Instead, the Court distinguished AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011)and others by characterizing the challenged arbitration terms as “gateway” issues going to the very formation of the parties’ bargain. Here, unlike Concepcion, there was no state law prohibiting class action waivers arguably in conflict with the FAA.

Important gains for employees tempered by reality of the arbitration dispute process

While the outcome of Hill v. Garda circa 2013 certainly helped clarify the language and terms used in arbitration clauses in employee agreements going forward, at least two things about the Hill decision should give aggrieved employees pause.  This litigation began in 2009!  Although various procedural issues delayed ultimate resolution, the uncertainty for all parties lasted nearly a decade.  More ominously perhaps, from this case it would seem that employers who specify that arbitrability shall be determined by the arbitrator can limit the possibility of future results similar to Hill.

Finally, there is little doubt that arbitration is an employment dispute forum more favorable to employers than civil trial. (See,  Professor Colvin’s exhaustive 2011 study comparing thousands of employment arbitration awards with employment civil trial outcomes over a period of several years found that employers prevailed more often in arbitration.  When employees did win in arbitration, the arbitration awards were usually lower than civil trial verdicts.  Employer success in arbitration occurred even more often when the arbitrator had served repeatedly in cases involving the same employer. In discussions with experienced arbitrators, many doubt the validity of that finding in the Colvin study.  The reasons appear to be grounded in self interest in many instances.

The law protected the employees — this time

From Hill it is clear that the employer’s blatant disregard of applicable Washington law doomed its arbitration clauses.  However, Hill also suggests that careful attorneys for employers can draft arbitration provisions that allow arbitrators and not the courts to define the scope of arbitral jurisdiction.  If so, because arbitration is largely a private process, often without any transcript or other record of proceedings, it is likely that individual arbitrators could reach inconsistent jurisdictional conclusions even under similar or identical facts.  How such results would advance the best interests of employers or employees is difficult to see.

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