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Hill v. Garda CL Northwest, Inc.

Washington Supreme Court
179 Wash.2d 47 (2013)
ELI5:

Rule of Law:

An arbitration agreement is substantively unconscionable and therefore unenforceable when its terms, such as a drastically shortened statute of limitations, severe limits on damages, and prohibitive fee-sharing provisions, are monstrously harsh, one-sided, and effectively prevent an employee from vindicating their statutory rights.


Facts:

  • Garda CL Northwest Inc., an armored car company, required its employees, including Lawrence Hill, Adam Wise, and Robert Miller, to sign a labor agreement as a condition of employment.
  • The agreements were negotiated with employee associations that were not traditional unions, had no financial resources, and engaged in little to no actual bargaining on behalf of employees.
  • The labor agreement contained a mandatory grievance and arbitration clause.
  • This clause required employees to file any grievance within 14 days of the event.
  • The clause also limited the recovery of back pay to either two or four months, depending on the specific agreement.
  • The clause included a fee-sharing provision requiring the employee association and Garda to each pay half of the arbitrator's fee and other hearing costs.
  • The employee associations had no funds to pay for arbitration, and uncontroverted evidence showed that no employee had used the grievance process for at least five years.

Procedural Posture:

  • The employees filed a class-action lawsuit against Garda in King County Superior Court (trial court) for wage and hour violations.
  • Garda filed a motion to compel arbitration based on the labor agreement.
  • The trial court certified the employees as a class and also granted Garda's motion to compel, ordering the case to class arbitration.
  • Garda appealed the trial court's order allowing class arbitration to the Washington Court of Appeals (intermediate appellate court).
  • The employees cross-appealed the order compelling them to arbitrate at all.
  • The Court of Appeals affirmed the order compelling arbitration but reversed on the class issue, holding that the employees must arbitrate on an individual basis and declining to rule on unconscionability.
  • The employees petitioned the Supreme Court of Washington for review.

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Issue:

Is an arbitration clause in a labor agreement substantively unconscionable when it requires employees to bring claims within 14 days, limits back-pay damages, and imposes significant fee-sharing costs on employees who lack the resources to pay them?


Opinions:

Majority - Stephens, J.

Yes. The arbitration clause is substantively unconscionable and unenforceable. A contract term is substantively unconscionable if it is monstrously harsh, one-sided, or shocks the conscience. Here, three key provisions are unconscionable. First, shortening the limitations period from the statutory three years to just 14 days is unconscionable, following the precedent set in Gandee. Second, the provision limiting back-pay damages is one-sided, as it unfairly favors Garda by significantly curbing the remedies an employee could otherwise recover under statutory wage and hour claims. Third, the fee-sharing provision is unconscionable because the employees provided evidence that the high costs of arbitration, combined with their limited resources and the inability of the employee associations to contribute, effectively prohibit them from bringing claims. Because these unconscionable terms pervade the agreement and cannot be severed without altering its fundamental nature, the entire arbitration clause is void.



Analysis:

This decision solidifies Washington's robust application of the unconscionability doctrine as a defense to the enforcement of arbitration agreements, particularly in the employment context. It affirms that state-law contract defenses remain viable despite the Federal Arbitration Act's broad preemptive scope, especially when the defense does not target arbitration itself but rather applies to any unfair contract. The case provides a clear roadmap for challenging arbitration clauses by identifying specific types of provisions—drastically shortened limitations periods, remedy limitations, and prohibitive cost-sharing—that courts are likely to find substantively unconscionable. This holding empowers employees with unequal bargaining power and may influence how companies draft arbitration clauses to ensure their enforceability.

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