Labor & Employment Law

Unconscionability the Washington State way

Washington's approach to unconscionability is unusual because it is not necessary to establish both procedural unconscionability (e.g., disparate bargaining power, take-it-or-leave-it contract) and substantive unconscionability (a contract term that is one-sided or overly harsh). Substantive unconscionability alone is sufficient to support a finding of unconscionability. 

McKee v. AT & T Corp. (Washington Supreme Court 08/28/2008) found four clauses to be substantively unconscionable while finding it unnecessary to decide the issue of procedural unconscionability. 

Plaintiffs were long distance telephone customers who filed a class action suit claiming that AT & T unlawfully billed them for a city tax surcharge in the amount of less than $2 per month. The Washington Supreme Court refused to enforce an arbitration agreement which contained four unconscionable clauses. 

1. Class action waiver clause. The court found the class action waiver clause to be substantively unconscionable because (1) it eviscerated the public's ability to act as "private attorneys general" as intended in the Washington Consumer Protection Act, (2) it effectively exculpated the defendant for potentially widespread misconduct because class actions are often the only effective way to address claims of small and widespread wrongs, (3) small claims court or low-cost arbitration are not practicable ways for individuals to pursue small amounts of damages. 
2. Forum selection clause. The court refused to enforce a forum selection clause that would have required the court to apply the law of New York, which allows enforcement of class action waivers. The court reasoned that (1) absent the choice of law clause, Washington law would apply, (2) New York's allowance of class action waivers conflicts with Washington's "fundamental public policy to protect consumers through the availability of class actions," and (3) Washington's interest in protecting large classes of consumers outweighs New York's limited interest. 
3. Shortened statute of limitations. The court struck down a contract clause that provided for a two year limitation period in a case where the Washington Consumer Protection Act provided a four year statute of limitations. The court said this was "substantively unconscionable as against public policy" "when imposed on a consumer in a contract of adhesion for a basic consumer service such as long distance telephone service." 
4. Confidentiality clause. The court found a confidentiality provision to be substantively unconscionable, saying that "consumer adhesion contracts that require secrecy" violate the public policy favoring the open and public administration of justice and unreasonably favor repeat players such as AT & T.

My view: Almost no other state allows a finding of unconscionability without a finding of procedural unconscionability. Washington really is staking out a new form of "public policy" analysis under which some clauses are unenforceable even when there is no showing of any abuse of superior bargaining power.

Full post as published by Arbitration Blog on September 01, 2008 (boomark / email).