Facts
- Airtouch Communications, Inc. hired Therese R. Zuver as a sales support representative in 1997.
- As a condition of employment, Zuver signed a predispute agreement requiring arbitration of broadly defined employment-related claims.
- The agreement included a confidentiality requirement for arbitration proceedings and awards.
- The agreement required the employee to waive punitive or exemplary damages for common-law claims, without imposing the same restriction on the employer.
- The agreement included fee-splitting and a prevailing-party attorneys’ fees provision, and contained a severability clause.
- After serious medical problems and an extended medical leave, Airtouch terminated Zuver’s employment.
- Zuver sued in Washington superior court alleging disability discrimination under Washington law.
- Airtouch moved to compel arbitration and stay the lawsuit; the trial court granted the motion.
Issues
- Whether the arbitration agreement was procedurally unconscionable based on the circumstances of its presentation and formation.
- Whether the confidentiality provision was substantively unconscionable.
- Whether the limitation-of-remedies provision, including the employee-only punitive-damages waiver, was substantively unconscionable.
- If certain provisions were unconscionable, whether they should be severed and the remainder of the arbitration agreement enforced.
Decision
- The Washington Supreme Court held the agreement was not procedurally unconscionable.
- The court held the confidentiality provision was substantively unconscionable.
- The court held the limitation-of-remedies provision, including the unilateral punitive-damages waiver, was substantively unconscionable.
- Applying the severability clause, the court severed the unconscionable provisions and enforced the remainder of the agreement.
- Arbitration was compelled, but without the severed confidentiality and remedies-limitation terms.
Legal Principles
- Under the FAA, arbitration agreements are generally enforceable, but may be invalidated by generally applicable contract defenses, including unconscionability.
- Washington recognizes procedural unconscionability (unfairness in contract formation) and substantive unconscionability (overly one-sided terms); either may render a clause unenforceable.
- A confidentiality requirement in an employment arbitration agreement may be substantively unconscionable when it disproportionately benefits the employer by hindering employees’ ability to establish patterns of discrimination or wrongdoing.
- A unilateral limitation on employee remedies, such as an employee-only punitive-damages waiver, may be substantively unconscionable for lack of mutuality and for skewing the dispute-resolution process.
- When unconscionable provisions are discrete and the parties included a severability clause, a court may sever the offending terms and enforce the remainder of the arbitration agreement.
Conclusion
The court enforced the parties’ agreement to arbitrate employment disputes but struck as substantively unconscionable the confidentiality requirement and the employee-only punitive-damages waiver, severing those provisions and compelling arbitration under the remaining terms.