Washington Ruling Highlights the Need for Careful Review of Arbitration Agreements and Class Action Waivers in Wage-and-Hour Disputes

In an unpublished opinion, the Washington Court of Appeals recently affirmed a trial court’s refusal to compel arbitration in a proposed class action against Geodis Logistics, LLC, holding that the employees’ arbitration agreements were unenforceable under both the Federal Arbitration Act (FAA) and Washington law. The decision aligns with the 2022 ruling by the Court of Appeals in Oakley v. Domino’s Pizza LLC and highlights the growing judicial scrutiny of arbitration agreements in wage-and-hour cases, particularly the risk that class action waivers of employment claims will be deemed unenforceable in Washington.

Case Background

Two warehouse employees filed a putative class action alleging violations of Washington’s Minimum Wage Act, Wage Rebate Act, Industrial Welfare Act, and Wage Payment Act. Each worker signed an arbitration agreement with a class action waiver. The agreements were governed by the FAA and included provisions requiring disputes to be arbitrated individually.

The trial court denied the employer’s motion to compel arbitration, concluding that the employees (warehouse workers) qualified as transportation workers exempt from the FAA. The Court of Appeals agreed, and further held that the agreements could not be enforced under Washington law because:

• Class action waivers are unconscionable: Consistent with other rulings, the Court of Appeals held that class action waivers in the employment context violate Washington public policy, particularly for wage-and-hour claims that are individually small but collectively significant.
• No severability for one agreement: One plaintiff’s agreement lacked a savings clause, making the FAA choice-of-law provision non-severable and unenforceable.
• Non-negotiable statutory rights: The court emphasized that Washington wage-and-hour statutes create substantive, non-waivable rights that cannot be displaced by arbitration agreements.

Key Takeaways for Employers

Washington is hostile to class action waivers for employees: The Geodis Logistics decision is one of several Washington cases invalidating class action waivers in wage-and-hour cases as unconscionable and contrary to public policy.

An FAA choice-of-law provision should be included in the arbitration agreement. The arbitration agreement should include a provision specifying that the FAA exclusively governs the interpretation and enforcement of the agreement. If the FAA governs (and an exemption does not apply), the class action waiver is more likely to be enforceable.

A savings clause matters: All arbitration agreements should include a savings (severability) clause.  But even with such a clause, Washington courts may still strike provisions of an arbitration agreement if they conflict with statutory rights.

The transportation worker exemption is broad: Employers relying on arbitration agreements with employees who are actively engaged in the transportation of goods or people across state lines, including warehouse and logistics employees, should carefully assess whether workers fall within the FAA’s transportation exemption.

What Employers with Washington-Based Employees Should Do Now

Employers with Washington-based employees should take action now to ensure their arbitration agreements can withstand legal scrutiny.  This includes: 

• Know which employees have and will sign arbitration agreements going forward;

• Audit arbitration agreements for compliance with state and federal law, and revise agreements as needed; additional consideration such as a cash payment is needed where a current employee is being asked to sign a revised agreement;

• Consider having employees sign an arbitration agreement that is separate/standalone from other onboarding documents; never rely solely on an arbitration policy or clause in a handbook as sufficient notice and acceptance of arbitration;

• Do not rely on an arbitration agreement to avoid class action exposure.  This means auditing and tightening compliance in areas commonly targeted in class actions, including meal and rest periods, pay transparency (job postings), off-the-clock work, and misclassification of contractors or exempt employees.

This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.