Steven Burnett v. Pagliacci Pizza, 442 P.3d 1267

Background

Burnett was hired as a delivery driver in Oct. 2015, signed an Employee Relationship Agreement (ERA) at orientation, and was given the employer handbook (“Little Book”) and told to read it at home. The ERA required employees to "learn and comply" with the Little Book but did not mention arbitration.
The Little Book (23 pages) contains a mandatory arbitration policy (page 18) and an internal F.A.I.R. dispute-resolution procedure that is a prerequisite to arbitration.
Burnett was terminated Jan. 22, 2017, and later filed a putative class action alleging wage-and-hour and related claims.
Pagliacci moved to compel arbitration under the Little Book policy; the trial court denied the motion finding no incorporated arbitration agreement. Pagliacci sought reconsideration and appealed.
The Court of Appeals found the Little Book incorporated by reference into the ERA but held the arbitration agreement unenforceable because it was procedurally and substantively unconscionable (procedural unconscionability alone was sufficient).

Issues

Issue	Plaintiff's Argument (Burnett)	Defendant's Argument (Pagliacci)	Held
Whether the Little Book arbitration policy was incorporated into the ERA	ERA’s reference to the Little Book was not a clear incorporation; employee had to read the book later	ERA expressly directed employees to "learn and comply" with the Little Book—clear incorporation by reference	The ERA clearly and unequivocally incorporated the Little Book; agreement to arbitrate exists (incorporation found)
Whether the agreement was procedurally unconscionable	Burnett had no reasonable opportunity to review the arbitration policy before signing ERA; policy buried in handbook	Handbook was available during employment; employers can amend handbooks and bind employees	Procedural unconscionability found: ERA was adhesion, Burnett lacked meaningful choice and opportunity to review; procedural unconscionability alone voids the policy
Whether the arbitration policy was substantively unconscionable (mutuality/one-sidedness)	Policy was one-sided and F.A.I.R. limitations provision unfairly curtailed employee remedies and access to courts	Lack of mutuality alone is not dispositive; policy reasonable and applies to current employees	One-way arbitration not per se unconscionable, but the F.A.I.R. Policy’s limitations (waiver for noncompliance, no tolling, prerequisite Supervisor Review) are substantively unconscionable because they can bar claims, shorten limitations periods, and discourage claims
Whether severance could cure unconscionable terms and save arbitration	Severance cannot cure the procedural defect and pervasive substantive unfairness	Severance of the F.A.I.R. limitations should preserve an otherwise valid arbitration clause	Severance inappropriate: agreement is both procedurally and substantively unconscionable, so the entire arbitration policy is unenforceable

Key Cases Cited

McKee v. AT & T Corp., 164 Wn.2d 372 (2008) (arbitrability is a question of law; burden to avoid arbitration on party resisting).
Zuver v. Airtouch Commc'ns, Inc., 153 Wn.2d 293 (2004) (distinguishes procedural vs. substantive unconscionability; substantive defects that limit remedies or confidentiality can be unconscionable).
Gandee v. LDL Freedom Enters., Inc., 176 Wn.2d 598 (2013) (discusses unconscionability and invalidation of arbitration clauses).
Adler v. Fred Lind Manor, 153 Wn.2d 331 (2004) (arbitration limitations periods may be substantively unconscionable; courts wary of procedural-unconscionability-only holdings).
Mattingly v. Palmer Ridge Homes, LLC, 157 Wn. App. 376 (2010) (upheld invalidation of contractual limitations buried in a booklet when signor had no opportunity to review).
Gaglidari v. Denny's Restaurants, Inc., 117 Wn.2d 426 (1991) (handbooks can modify at-will employment; employer amendments require reasonable notice; not authority for imposing arbitration clauses via handbooks).
Govier v. North Sound Bank, 91 Wn. App. 493 (1998) (personnel handbook can create unilateral obligations; context differs from binding arbitration).
Tiart v. Smith Barney, Inc., 107 Wn. App. 885 (2001) (arbitration provision enforceable where it was obvious in a short contract).
Weiss v. Lonnquist, 153 Wn. App. 502 (2009) (ordinary contract principles govern existence of agreement to arbitrate).
Woodward v. Emeritus Corp., 192 Wn. App. 584 (2016) (severance is typical remedy but courts will void entire arbitration agreement when unconscionable terms pervade it).