Labor & Employment Law Daily Arbitration provision served up by pizza restaurant without notice to driver is unenforceable
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Wednesday, August 26, 2020

Arbitration provision served up by pizza restaurant without notice to driver is unenforceable

By Brandi O. Brown, J.D.

When signing the employment agreement, the employee had no notice of the provision contained in a separate handbook and, even if a contract had existed, it was procedurally and substantively unconscionable.

In a class action suit brought by a pizza delivery driver for wage and hour violations, an en banc Washington Supreme Court held that no agreement to arbitrate existed because the employee, when signing the employment agreement, had no notice of the arbitration provision contained in a separate handbook. The court also concluded that even if an agreement had existed, it was procedurally and substantively unconscionable. The court affirmed the trial court’s order denying the defendant’s motion to compel arbitration (Burnett v. Pagliacci Pizza, Inc., August 20, 2020, Madsen,B.).

Signed employment agreement. After the plaintiff was offered employment as a delivery driver for Pagliacci Pizza, he attended a new employee orientation that lasted nearly an hour. During that orientation he received multiple forms that he was told to sign so that he could start working, including a one-page “Employee Relationship Agreement.” That agreement did not mention arbitration. It provided, “On your own initiative you will learn and comply with the rules and policies outlined in our Little Book of Answers, including those that relate to positive attitude, public safety, company funds, tips and FAIR policy.” The agreement also provided that the employer “will on occasion” change the policies contained in that book.

Handbook to read at home. The “Little Book of Answers” was the 23-page employee handbook, which the employee received during the orientation but was told to read at home. A “Mandatory Arbitration Policy” was included in the handbook, although it was not listed in the handbook’s table of contents. The policy, moreover, fell within the “Mutual Fairness Benefits” section on page 18 of the handbook. The arbitration policy provided that the employee must submit disputes “to resolution in accordance with the F.A.I.R. Policy” before commencing arbitration. The “F.A.I.R. Policy” is the employer’s informal, multi-step process that the employee must use “to attempt in good faith to resolve the dispute to the mutual satisfaction of you and Pagliacci Pizza without arbitration.”

Motion to compel arbitration denied. In 2017 the employee was fired and he filed a putative class action alleging wage-related claims. The employer moved to compel arbitration. The trial court denied the motion, expressing concerns about the procedural and substantive unconscionability of the arbitration provision. However, it based its decision on the conclusion that the arbitration provision was not incorporated into the employment agreement. The Court of Appeals affirmed. While it did not agree with the trial court that the arbitration policy was not incorporated into the employment agreement, it nevertheless concluded procedural and substantive unconscionability barred enforcement. The employer petitioned for, and was granted, review by the state high court.

No mutual assent. Although Washington policy favors arbitration, the Washington Supreme Court explained, that policy does not lessen its responsibility to determine whether the arbitration contract in question is valid. Reviewing de novo the trial court’s decision not to compel arbitration, the court agreed with the trial court’s conclusion that the employee never assented to arbitration. Mutual assent is required for a valid contract to be formed under Washington law. In this case, the employee was not given an opportunity to review the employee handbook before signing the agreement and, as a result, “lacked knowledge of the incorporated terms,” and thus never assented to the arbitration policy. The court also rejected any argument that the employee consented and agreed to arbitrate by performing job duties.

Procedurally unconscionable. Even if the employee had been deemed to have agreed to arbitration, the court continued, the arbitration agreement was procedurally unconscionable and thus unenforceable. The employee “never agreed to arbitrate.” He had no knowledge or notice of the mandatory arbitration policy or that it even existed when he signed the employment agreement. Nevertheless, even if a valid agreement had been formed, the facts showed that he “lacked meaningful choice,” which is the most important factor in finding procedural unconscionability. The employment agreement did not mention arbitration, the arbitration policy itself was on page 18 of a 23-page handbook that the employee received after signing the employment agreement, and the policy was not identified in the book’s table of contents. Thus, essential terms were hidden and the employee had no reasonable opportunity to understand the policy before signing the employment contract.

Substantively unconscionable. Furthermore, the court agreed with the Court of Appeals’ assessment that the effect of the employer’s “two-step mandatory arbitration policy is ‘so one-sided and harsh that it is substantively unconscionable.’” The handbook required employees to submit their claims to arbitration and required them to follow the F.A.I.R. Policy before pursuing arbitration. It stated that if they did not, they “waive[d] any right to raise the claim in any court or other forum, including arbitration.” Moreover, compliance with the F.A.I.R. Policy’s procedures and limitations, it stated, “shall not be subject to tolling, equitable or otherwise.” Thus, in addition to shortening the statute of limitations for employees, the policy barred terminated employees from adherence (because they could not meet the requirement of reporting to a supervisor) and failed to provide any exceptions for where the supervisor is causing the problem.

Severing the provision, moreover, could not save it because the F.A.I.R. Policy procedures were “intertwined with the arbitration provision.” Moreover, no severance clause was included in either the employment agreement, the arbitration policy, or the F.A.I.R. Policy. The court also rejected the argument by the employer that the Court of Appeals improperly applied Zuver v. Airtouch Commc’ns, Inc.

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