STEVEN BURNETT, individually and on behalf of all others similarly situated, Respondent,
PAGLIACCI PIZZA, INC., a Washington corporation, Appellant.
Steven Burnett was hired as a delivery driver by Pagliacci
Pizza Inc., he was required to sign an "Employee
Relationship Agreement" to begin work. He was also given
an employee handbook containing a mandatory arbitration
policy and told to read it at home. When Burnett later sued
Pagliacci for various wage-related claims, Pagliacci moved to
compel arbitration under the policy printed in its handbook.
Pagliacci appeals the trial court's denial of that
that because Burnett did not have a reasonable opportunity to
review the arbitration policy before he was required to sign
the Employee Relationship Agreement, the circumstances
surrounding the formation of the parties' agreement to
arbitrate were procedurally unconscionable. We hold further
that the mandatory arbitration policy is substantively
unconscionable because certain prerequisites to arbitration
required by the policy unreasonably favor Pagliacci by
limiting employees' access to substantive remedies and
discouraging them from pursuing valid claims. Therefore, we
hired Burnett as a delivery driver for Pagliacci's Valley
Street location in October 2015. Upon hire, Burnett attended
a mandatory orientation, which took between 40 minutes and an
hour. At the orientation, Burnett was shown around the store,
given Pagliacci T-shirts, and told about Pagliacci's
history and values. He also watched some videos about how to
succeed as a delivery driver. Additionally, Burnett was given
some forms and told to sign them so that he could start
working. One of those forms was an Employee Relationship
Agreement (ERA), which Burnett signed. Burnett was also given
a copy of Pagliacci's "Little Book of Answers"
(Little Book) and told to read it at home. Although the ERA
directs the employee to "learn and comply with the rules
and policies outlined in our Little Book . . ., including
those that relate to positive attitude, public safety,
company funds, tips and FAIR [Fair and Amicable Internal
Resolution] Policy," the ERA does not mention
terminated Burnett's employment on January 22, 2017. In
October 2017, Burnett filed a putative class action against
Pagliacci, alleging among other things that Pagliacci failed
to provide delivery drivers with required rest and meal
periods, failed to pay all wages due to delivery drivers,
wrongfully retained delivery charges, and made unlawful
deductions from delivery drivers' wages.
moved to compel arbitration of Burnett's claims under its
mandatory arbitration policy, which is printed in the Little
Book. That policy provides:
The company has a mandatory arbitration policy with which you
must comply for the binding resolution of disputes without
lawsuits. If you believe you have been a victim of illegal
harassment or discrimination or that you have not been paid
for all hours worked or at less than the rate of pay required
by law or that the termination of your employment was
wrongful, you submit the dispute to resolution in accordance
with the F.A.I.R. Policy and if those procedures are not
successful in resolving the dispute, you then submit the
dispute to binding arbitration before a neutral arbitrator
pursuant to the Washington Arbitration Act.
"F.A.I.R. Policy" referred to in the mandatory
arbitration policy requires that before commencing
arbitration, the employee first "report the matter and
all details" to his or her supervisor (Supervisor
Review). If Supervisor Review does not resolve the matter to
the employee's satisfaction, he or she may initiate
nonbinding conciliation, wherein the "F.A.I.R.
Administrator will designate a responsible person at
Pagliacci Pizza (who may be its owner) to meet face-to-face
with you in a non-binding Conciliation." The F.A.I.R.
Policy also includes the following limitations provision:
You may not commence an arbitration of a claim that is
covered by the Pagliacci Pizza Arbitration Policy or commence
a lawsuit on a claim that is not covered by the Pagliacci
Pizza Arbitration Policy unless you have first submitted the
claim to resolution in conformity with the F.A.I.R. Policy
and fully complied with the steps and procedures in the
F.A.I.R. Policy. If you do not comply with a step, rule or
procedure in the F.A.I.R. Policy with respect to a claim, you
waive any right to raise the claim in any court or other
forum, including arbitration. The limitations set forth in
this paragraph shall not be subject to tolling, equitable or
opposed Pagliacci's motion to compel arbitration. He
argued that the mandatory arbitration policy was both
procedurally and substantively unconscionable, but the trial
court did not reach those arguments. Instead, it concluded
that although Burnett agreed under the ERA to "learn and
comply with the rules and policies outlined in our Little
Book," the Little Book was not incorporated by reference
into the ERA. The court therefore denied Pagliacci's
motion, finding there was no agreement to
moved for reconsideration, arguing that the Little Book was
incorporated by reference into the ERA. Pagliacci also argued
that regardless of whether it was incorporated by reference
into the ERA, the Little Book created an agreement to
arbitrate because Burnett received a copy of it and then
continued his employment thereafter. The court denied
Pagliacci's motion for reconsideration. Pagliacci
argues that the trial court erred by denying its motion to
compel arbitration and its subsequent motion for
reconsideration. We disagree.
is a question of law that we review de novo. McKee v.
AT&T Corp., 164 Wn.2d 372, 383, 191 P.3d 845 (2008).
"The burden of proof is on the party seeking to avoid
arbitration." McKee, 164 Wn.2d at 383.
"Regardless of whether the Federal Arbitration
Act... or the Washington uniform arbitration
act... applies, our analysis as to whether...
claims are subject to arbitration begins in the same
manner." Weiss v. Lonnquist, 153 Wn.App. 502,
510, 224 P.3d 787 (2009). Specifically, "[a]s arbitration is
a matter of contract, parties cannot be compelled to
arbitrate unless they agreed to do so." Weiss,
153 Wn.App. at 510.
determining whether an agreement to arbitrate exists, we
first determine whether the parties have agreed to arbitrate
a particular matter by applying ordinary contract principles.
Weiss, 153 Wn.App. at 511: see also Tjart v.
Smith Barney, Inc., 107 Wn.App. 885, 895-97, 28 P.3d 823
(2001) (considering whether an arbitration agreement existed
before analyzing whether the arbitration agreement was
enforceable). Where, as here, no material facts are in
dispute, contract interpretation is a question of law that we
review de novo. Dave Johnson Ins. v. Wright, 167
Wn.App. 758, 769, 275 P.3d 339 (2012). Additionally, if an
agreement to arbitrate exists, "[g]eneral contract
defenses such as unconscionability may invalidate arbitration
agreements." McKee, 164 Wn.2d at 383.
Unconscionability is also a question of law reviewed de novo.
McKee, 164 Wn.2d at 383.
reasons that follow, we conclude that an agreement to
arbitrate exists here but that the agreement is
unconscionable and unenforceable.
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argues that the trial court erred by concluding that the
mandatory arbitration policy was not incorporated into the
ERA and consequently there was no agreement to arbitrate. We
by reference allows the parties to 'incorporate
contractual terms by reference to a separate . . . agreement
to which they are not parties, and including a separate
document which is unsigned."' W. Wash. Corp. of
Seventh-Day Adventists v. Ferrellgas, Inc., 102 Wn.App.
488, 494, 7 P.3d 861 (2000) (alteration in original) (quoting
11 Samuel Williston & Richard A. Lord, A Treatise on the
Law of Contracts § 30:25, at 233-34 (4th ed. 1999)).
"'But incorporation by reference is ineffective to
accomplish its intended purpose where the provisions to which
reference is made do not have a reasonably clear and
ascertainable meaning."' Seventh-Day
Adventists, 102 Wn.App. at 494 (quoting 11 Williston
& Lord, § 30:25, at 234). "'[I]t must be
clear that the parties to the agreement had knowledge of and
assented to the incorporated terms[.]"'
Seventh-Day Adventists, 102 Wn.App. at 494-95
(alterations in original) (quoting 11 Williston & Lord,
§ 30:25, at 234).
Seventh-Day Adventists, the court held that a
"Trade Contract" "clearly and unequivocally
incorporate[d] the 'Contract Project Documents' and
the 'Contract Documents'" by stating that work
would be performed "in accordance with the 'Project
Contract Documents'" and "'in accordance
with Contract Documents.'" Seventh-Day
Adventists, 102 Wn.App. at 492, 495. Here, like the
Trade Contract in Seventh-Day Adventists, the ERA
clearly and unequivocally incorporates the Little Book.
Specifically, the ERA expressly provides that employees will,
on their own initiative, "learn and comply with the
rules and policies outlined in our Little Book of
Answers." Furthermore, Burnett does not argue that there
was any lack of clarity that the Little Book described in the
ERA is the same Little Book that he received at orientation.
For these reasons, the rules and policies in the Little Book
were incorporated by reference into the ERA.
makes no attempt to distinguish Seventh-Day
Adventists even though he cites that case for the
proposition that incorporation by reference must be clear and
unequivocal. Instead, he argues that "an employment
contract telling an employee to read 'on your own
time' a separate employment handbook is not 'clear
and unequivocal' incorporation by reference." But
the ERA not only directs the employee to read the Little Book
on his or her own time, it also requires the employee to
comply with the rules and policies outlined therein.
Therefore, Burnett's argument is not persuasive, and we
conclude that an agreement to arbitrate exists
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concluded that the parties agreed to arbitrate, we next
consider whether the parties' agreement is enforceable.
For the reasons that follow, we conclude that the
circumstances surrounding the formation of the parties'
arbitration agreement were procedurally unconscionable and
that the mandatory arbitration policy is substantively
unconscionable. We also conclude that severance of the
substantively unconscionable provisions is inappropriate here
and thus hold that the mandatory arbitration policy is