Washington: Unconscionable Terms of Arbitration Agreement Held Severable (Web)
February 14, 2005
Unconscionable Terms of Arbitration Agreement Held Severable
On December 23rd, 2004, the Washington Supreme Court held that although two terms in an arbitration agreement were substantively unconscionable and material issues of fact remained concerning whether the agreement was procedurally unconscionable, the employer did not engage in an “‘insidious pattern’ of seeking to tip the scales in its favor.” Adler v. Manor, 2004 WL 3016302, at *12. Therefore, the unconscionable provisions could be severed and the arbitration agreement remains.
The case concerned a maintenance worker employed by Fred Lind Manor. After being discharged and going through the EEOC complaint process, Adler filed a complaint alleging violation of state law through discrimination against him for his disability, age, and national origin. Adler additionally claimed unlawful discharge for pursuing worker’s benefits as well as wrongful discharge, intentional infliction of emotional distress, and creating a hostile work environment. Fred Lind Manor moved to compel arbitration under an agreement signed by Adler three years after he began his employment.
Under the Agreement, disputes between the parties would be arbitrated, each side would be responsible for its own attorney fees and other arbitration expenses, and claims had to be raised within 180 days after the event.
The court, sitting en banc, found the attorney fees and statute of limitations provisions unconscionable. In cutting the attorney fees provision, the court reasoned that the provision “effectively undermines a plaintiff’s rights to attorney fees under [state law] and helps the party with a substantially stronger bargaining position and more resources, to the disadvantage of an employee needing to obtain legal assistance.” Id. at *10. The statute of limitations provision was similarly held unconscionable largely because it lacked the tolling and continuing violations doctrines of state law and established a liability cut-off if notice of the first violative behavior is not given within 180 days.
After finding that these provisions were substantively unconscionable but could be severed, the court further found that Fred Lind Manor had not waived its right to compel arbitration by participating in a mediation as part of the EEOC complaint or by failing to remind Adler of the arbitration agreement until after the 180 day limitation period had elapsed. The court clarified that mediation does not amount to the commencement of legal action and that by raising the arbitration defense in its initial answer to Adler’s complaint and promptly moving to complete arbitration, Fred Lind Manor did not waive its right.
Adler also raised issues of procedural unconscionability based on his contention that he did not understand arbitration, had limited English fluency, was told that he had to sign or be fired, and otherwise lacked meaningful choice. The court, noting that the arbitration agreement was an adhesion contract under state law, cited conflicting evidence on the procedural unconscionability of the arbitration agreement. As a result, it remanded that issue to the trial court. It also remanded the issue of whether the arbitration fee-splitting provision was substantively unconscionable to determine whether the costs would be effectively prohibit Adler from bringing his claim.
The case can be found at 2004 WL 3016302 and is also available at: http://www.courts.wa.gov/opinions/?fa=opinions.opindisp&docid=747016MAJ