Arbitration is an alternative way to resolve disputes outside of court. As explained by the American Bar Association, arbitration is a private process where disputing parties agree that a neutral third party can make a decision about the dispute after hearing evidence and arguments. Arbitration is different than mediation. In arbitration the arbitrator can decide the dispute, but in mediation the mediator merely helps the parties reach a mutually agreeable settlement.
Sometimes, arbitration is preferable to litigation in court because arbitration can be faster and less expensive than litigation, and it can keep disputes outside of the public’s eye in contrast to lawsuits where the court record and court proceedings are open to the general public.
Both parties must agree to arbitration for it to be used. A party cannot be forced into arbitration outside of court if they have not agreed to arbitration. Often, contracts contain arbitration clauses that require any disputes between the parties to the contract to be arbitrated, rather than litigated in court.
Recently, the Washington Supreme Court issued a decision that ruled that the plaintiff in the case had not agreed to arbitration. In Burnett v. Pagliacci Pizza, Inc., a pizza company hired a delivery driver. At the employee’s orientation, he was asked to sign a 1-page employment agreement. That agreement did not contain an arbitration clause. The employment agreement did mention an employee handbook. The employee was given a copy of the handbook at orientation and told to read it at home. In the handbook was an arbitration clause requiring all disputes between the employee and the company to be arbitrated.
The Washington Supreme Court ruled there was no agreement/contract to arbitrate because the employee had no knowledge of the arbitration clause in the handbook when he signed the employment agreement since he was told to read it later. Thus, the arbitration clause was not enforceable.
This new case from our state supreme court provides guidance on when arbitration clauses will be enforced and when they will not. Contract drafters will want to take special care to make sure all parties to a contract are aware of and agree to any arbitration clause in the contract. Otherwise, such a clause may not be enforceable and the parties may be required to litigate their disputes in court.
Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.
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