Yesterday, in case called Mayne v. Monaco Enterprises, Inc., a Washington Appellate Court struck down an arbitration clause because the employee faced immediate termination if he did not sign. The employee in this case had worked for the employer for over fifteen years under an employment agreement containing an arbitration clause, which the employee signed at the outset of employment. Fifteen years later, the employer presented the employee with a new employment agreement containing a new arbitration clause.
The new arbitration clause stated that “had the Employee not agreed to execute this Arbitration Agreement, the Company would not have agreed to employ the Employee.” The Court concluded that this provision made the arbitration clause “procedurally unconscionable” and therefore unenforceable. The employee “could decline to sign the agreement and immediately end his employment, or he could sign the agreement and continue working. There was no meaningful choice.”
The court was careful to distinguish mandatory arbitration agreements signed at the outset of employment. As the court explained, “at the onset of employment … the employee knows the condition before agreeing to accept employment.”
The court also provided employers with some suggestions regarding arbitration agreements with existing employees, including “offer[ing] a reasonable time to sign before voluntarily leaving employment” or “offer[ing] some incentive as consideration” rather than “the threat of immediate termination.”
Luckily for the employer in this case, the parties had agreed that if the new arbitration clause were to be held unenforceable, the old arbitration clause would apply. The court ultimately compelled arbitration under the prior arbitration clause.
The take away for Washington employers: get your arbitration clauses in place at the outset of employment, and if you want an existing employee to sign one, do not threaten to immediately fire the employee if the employee refuses. Instead, employees should have a reasonable time to review the clause and, wherever possible, have some independent consideration (payment or other thing of value) for signing.