Arbitration
Arbitration agreements are critical in contracts, because they determine where and how you bring your claims against the contracted party. Arbitration is known to be heavily biased towards big businesses, so whether you are an employee or consumer, it is important to know if your contract is controlled by a valid arbitration agreement.
In Washington, Arbitration agreements are governed by RCW 7.04A.060, which states:
(1) An agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of contract. (2) The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.
In Washington State, arbitration agreements are reviewed under contract law, and general contract defenses are available in arbitration agreement cases. Zuver v. Airtouch Commc'ns, Inc., 153 Wn.2d 293, 302, 103 P.3d 753, 759 (2004). As such, for an arbitration agreement to be invalidated, the arbitration agreement must either not be a valid contract, or the valid contract must be procedurally or substantively unconscionable. Id. at 302-3. Substantive unconscionability, “involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh.” Id. at 303 (quotations and citations omitted). Procedural unconscionability on the other hand, “is the lack of meaningful choice, considering all the circumstances surrounding the transaction including [t]he manner in which the contract was entered, whether each party had a reasonable opportunity to understand the terms of the contract, and whether the important terms [were] hidden in a maze of fine print.” Id. (citations and quotations omitted). Either form of unconscionability “is sufficient to void the agreement.” Burnett v. Pagliacci Pizza, Inc., 196 Wn.2d 38, 54, 470 P.3d 486, 495 (2020) (citations and quotations omitted).
“To determine whether an agreement is procedurally unconscionable, we examine the circumstances surrounding the transaction, including (1) the manner in which the contract was entered, (2) whether [the employee] had a reasonable opportunity to understand the terms of the contract, and (3) whether the important terms were hidden in a maze of fine print, to determine whether a party lacked a meaningful choice.” Burnett, 196 Wn.2d at 54 (citations omitted). In Burnett, the court held that “[b]ecause essential terms were hidden and Burnett had no reasonable opportunity to understand the arbitration policy before signing the employment contract, the manner in which the contract was entered demonstrated that Burnett lacked a meaningful choice regarding the arbitration policy,” and that as such “even if an arbitration agreement was indeed established, it was procedurally unconscionable and unenforceable.” Id. at 57.
Additionally, adhesion contracts are not inherently procedurally unconscionable, but “the fact that a contract is an adhesion contract is relevant . . . [t]he key inquiry is whether the party lacked meaningful choice.” Burnett, 196 Wn.2d at 54 (citations omitted). To establish whether a contract is an adhesion contract, courts examine, “(1) whether the contract is a standard form printed contract, (2) whether it was prepared by one party and submitted to the other on a take it or leave it basis, and (3) whether there was no true equality of bargaining power between the parties.” Zuver, 153 Wn.2d at 304 (citations and quotations omitted).
Similarly, these issues are all predicated on the existence of a valid arbitration agreement contract, which requires mutual assent to its essential terms. Burnett, 196 Wn.2d at 48-9 (citations omitted). Critically, “incorporation by reference does not, in itself, establish mutual assent to the terms being incorporated” Id. at 49 (citations and quotations omitted). For incorporated terms to be held as binding and valid within the contract, “[i]t must be clear that the parties to the agreement had knowledge of and assented to the incorporated terms.” W. Washington Corp. of Seventh-Day Adventists v. Ferrellgas, Inc., 102 Wn. App. 488, 494–95, 7 P.3d 861, 865 (2000).