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Washington Arbitration Agreement Held Unenforceable When Entered Into During the Course of Employment

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A Washington appellate court has barred employers from entering into arbitration agreements with at-will employees unless they provide additional consideration, such as a cash payment.

In a decision involving an employee who was presented with a revised arbitration agreement after signing an earlier version, the court refused to enforce the new version because it had not been signed upon initial employment. The employer failed to provide any additional consideration to the employee, who was employed at will.  The employer told the employee that either he had to sign the arbitration agreement or he would lose his job.

The Washington Court of Appeals found that such a “take it or leave it” approach left the employee with no choice but to sign the agreement, which was therefore unconscionable and unenforceable. Mayne v. Monaco Enters., No. 14-2-02645-0 (Wn. Ct. App. Nov. 3, 2015). The court did state that arbitration agreements entered into upon initial employment did not require additional consideration and that an arbitration agreement with an at-will employee entered into during employment could be enforceable if it was accompanied by additional consideration, such as a cash payment or stock options provided to the employee.

The court thus adopted the Washington court ruling requiring additional compensation for covenants not to compete and applied it to arbitration agreements. Like arbitration agreements, a covenant not to compete is not enforceable when entered into in the middle of employment unless it is accompanied by additional consideration. But both a covenant not to compete and an employment arbitration agreement are fully enforceable when presented to an employee upon hiring before the first day of employment.

The employer that wishes to have an enforceable arbitration agreement requiring an employee to arbitrate all claims arising out of his or her employment should present that agreement upon initial employment or when the employee gets a promotion and raise, if the employer wants to avoid making a separate payment for the arbitration agreement. And before making the decision to seek an arbitration, it’s a good idea to ask an employment lawyer about the pros and cons of arbitration as compared to using the court system.