In Hill v. Garda CL NW, Inc., the Washington Supreme Court reiterated that courts have the power and obligation to resolve dsputes going to the validity of arbitration agreements, unless an arbitration agreement clearly and unmistakably provides otherwise. Unconscionability is one such dispute, and the Court ruled that an arbitration agreement severely limiting the rights of employees was unconscionable.

Background:

Employees of the armored car company, Garda, brought a wage and hour suit on behalf of themselves and a purported class against Garda, claiming violations of Washington’s Minimum Wage and Industrial Welfare Acts for missed meal and rest breaks. Following months of litigation, including the certification of an employee class, Garda moved to compel arbitration under the terms of a labor agreement. The trial court granted the motion to compel arbitration and the Court of Appeals affirmed the order compelling arbitration. The Supreme Court granted the employees’ petition for review, and evaluated just one issue, an issue that the Court of Appeals did not analyze: are the terms of the arbitration clause unconscionable?

Analysis:

The Supreme Court recognized arbitration is generally favored as a matter of policy, but it reiterated that arbitration agreements themselves are contractual matters, and that a party cannot be required to submit a dispute to arbitration if she or he did not so agree. The Court reemphasized courts’ authority to decide “gateway disputes,” which it defined as those disputes that go to the validity of the contract altogether, noting that such disputes are preserved for judicial determination – not the arbitrator’s – unless the parties’ agreement clearly and unmistakably provides otherwise. The Court also confirmed that should a trial court compel arbitration (or decline to do so), that decision is immediately appealable as either scenario would force a party to endure a potentially costly and lengthy proceeding before having the opportunity to appeal.

In deciding the instant case, the Supreme Court agreed with the employees that three provisions of the arbitration agreement were substantively unconscionable, meaning the terms were overly or monstrously harsh, were one-sided, shocks the conscience, or was exceedingly calloused:

1. Shortening the Statute of Limitations: the labor agreement shortened the statute of limitations to only 14-days, compared to the three-year limitation period under state law;
2. Limitations on the Reach-Back Period: the labor agreement limited back pay damages to only two- or four-months (depending on which agreement applied), compared to the full amount of the wages due pursuant to Washington law; and
3. Fee-Sharing Provision: since the employees provided specific information about the arbitration fees they would be required to share, as well as information as to why those fees would prohibit them from bringing the claim, they satisfied their burden to show that the fee-splitting provision in the labor agreement was substantively unconscionable.

In its unanimous decision, the Court held that the arbitration clause in the labor agreement was substantively unconscionable and therefore unenforceable. It reversed the Court of Appeals and remanded.