Burnett v. Pagliacci Pizza, Inc.

CourtUnited States State Supreme Court of Washington
Citation470 P.3d 486,196 Wash.2d 38
Decision Date20 August 2020
Docket NumberNo. 97429-2,97429-2
Parties Steven BURNETT, individually and on behalf of all others similarly situated, Respondents, v. PAGLIACCI PIZZA, INC., a Washington corporation, Petitioner.

Michael William Droke, Todd Stuart Fairchild, Jasmine Hui, Dorsey & Whitney LLP, 701 5th Ave. Ste. 6100, Seattle, WA, 98104-7043, for Petitioner(s).

Toby James Marshall, Erika L Nusser, Blythe H Chandler, Terrell Marshall Law Group PLLC, 936 N. 34th St. Ste. 300, Seattle, WA, 98103-8869, for Respondent(s).

Catharine M Morisset, Fisher & Phillips LLP, 1201 3rd Ave. Ste. 2750, Seattle, WA, 98101-3274, for Amicus Curiae on behalf of Washington Hospitality Association.

Valerie Davis Mcomie, Attorney at Law, 4549 Ne Aspen St., Camas, WA, 98607-8302, Daniel Edward Huntington, Richter-Wimberley PS, 422 W. Riverside Ave. Ste. 1300, Spokane, WA, 99201-0305, for Amicus Curiae on behalf of Washington State Association for Justice Foundation.

Jeffrey Lowell Needle, Attorney at Law, 705 2nd Ave. Ste. 1050, Seattle, WA, 98104-1759, Joseph Robert Shaeffer, MacDonald Hoague & Bayless, 705 2nd Ave. Ste. 1500, Seattle, WA, 98104-1745, for Amicus Curiae on behalf of Washington Employment Lawyers Association.

Jason T. Dennett, Tousley Brain Stephens PLLC, 1700 7th Ave. Ste. 2200, Seattle, WA, 98101-4416, for Amicus Curiae on behalf of P.C. Public Justice.


¶ 1 This case has its genesis in a putative class action alleging wage and hour claims by delivery drivers against their employer, Pagliacci Pizza Inc. At issue on interlocutory review is whether the trial court sustainably denied the employer's motion to compel arbitration.

The Court of Appeals affirmed, determining that the mandatory arbitration policy contained in the employee handbook, which was provided to the named plaintiff after he signed the employment relationship agreement, was procedurally and substantively unconscionable and, thus, unenforceable. For the reasons discussed below, we affirm the denial of the motion to compel arbitration.


¶ 2 After two interviews, Pagliacci Pizza hired Steven Burnett as a delivery driver. Burnett attended a mandatory new employee orientation at a local Pagliacci Pizza location on October 16, 2015 that lasted between 40 minutes and an hour. During the orientation, Pagliacci gave Burnett multiple forms and told him to sign them so that he could start working. One of the forms that Burnett signed was a one-page "Employee Relationship Agreement" (ERA).

¶ 3 The ERA does not mention arbitration. Instead, it contains a section entitled "Inconsistencies in Hours/Pay/Breaks" that instructs employees to "promptly inform Human Resources" if they have concerns about breaks, pay, hours, or benefits. Clerk's Papers (CP) at 58. It says nothing about arbitration of disputes.

¶ 4 A section of the ERA, entitled "Accountability," addresses employee till shortages and employee failure to return "non-cash property of Pagliacci Pizza." Id . It authorizes Pagliacci to deduct directly from an employee's pay the amount of any till shortage, money the employee otherwise owes to Pagliacci, or the cost of any noncash property.

¶ 5 Pagliacci's "Mandatory Arbitration Policy" (MAP) is printed in Pagliacci's employee handbook, "Little Book of Answers." CP at 60-73. Little Book of Answers is a 23-page booklet in which Pagliacci's MAP appears on page 18. The MAP is not listed in the handbook's table of contents, and page 18 falls within the "Mutual Fairness Benefits" section. CP at 62.

¶ 6 Burnett was given a copy of Little Book of Answers during his orientation and told to read it at home. Consistent with that instruction, the ERA contains a section entitled "Rules and Policies." CP at 58. It provides, "On your own initiative you will learn and comply with the rules and policies outlined in our Little Book of Answers, including those that relate to positive attitude, public safety, company funds, tips and FAIR policy." Id . It also says that Pagliacci "will on occasion" change the policies and procedures contained in Little Book of Answers. Id. ¶ 7 The MAP contained in the handbook states, in full:

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 the Washington Arbitration Act.

CP at 71 (emphasis added). As can be seen, the MAP provides that the employee must submit disputes "to resolution in accordance with the F.A.I.R. Policy" before commencing arbitration. Id .

¶ 8 The "F.A.I.R. Policy," which is also contained in the handbook, is an informal multistep process that utilizes "supervisor review" and "conciliation." CP at 70. The opening paragraph of the F.A.I.R. Policy states:

F.A.I.R. stands for Fair and Amicable Internal Resolution. If you believe you have been treated unfairly in any way in your employment at Pagliacci Pizza (i.e., in the application of its rules and policies to you, not in the content of the rules and policies themselves), or if you believe the content of any of the rules or policies to be unlawful, or if you believe any of your rights have been violated, or if you believe you have been harassed, discriminated against or wrongfully terminated as described in the Pagliacci Pizza Arbitration Policy or the Pagliacci Pizza Unlawful Harassment Policy, you will use the steps and procedures of the F.A.I.R. Policy to attempt in good faith to resolve the dispute to the mutual satisfaction of you and Pagliacci Pizza without arbitration.

Id . The F.A.I.R. Policy then directs:

Informally report the matter and all details to your supervisor who will discuss the matter with you.
If Supervisor Review does not resolve the matter to your satisfaction, you may initiate non-binding Conciliation. 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.

Id . The F.A.I.R. Policy then provides a "Limitations on Actions" section, stating:

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 for 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 otherwise.

Id .

¶ 9 Pagliacci terminated Burnett on June 22, 2017. On October 20, 2017, Burnett filed a putative class action complaint alleging various wage related claims. Pagliacci moved to compel arbitration under its MAP contained in Little Book of Answers.

¶ 10 Burnett opposed Pagliacci's motion to compel arbitration, arguing that the MAP was both procedurally and substantively unconscionable. The trial court denied Pagliacci's motion to compel arbitration. In its oral ruling, the court expressed its concerns regarding both procedural and substantive unconscionability but declined to reach those issues and instead ruled that the arbitration provision contained in the handbook was not incorporated into the ERA. Pagliacci moved for reconsideration, which the trial court denied.

¶ 11 Pagliacci appealed, and the Court of Appeals affirmed.

Burnett v. Pagliacci Pizza, Inc. , 9 Wash. App. 2d 192, 442 P.3d 1267 (2019). The Court of Appeals agreed with Pagliacci that the trial court erred in concluding the MAP was not incorporated into the ERA and consequently there was no agreement to arbitrate. Nevertheless, the Court of Appeals ruled that because Burnett did not have a reasonable opportunity to review the arbitration policy before he was required to sign the ERA, the circumstances surrounding the formation of the parties’ agreement to arbitrate were procedurally unconscionable. The court further held that the MAP 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. Pagliacci petitioned for and was granted this court's review. Burnett v. Pagliacci Pizza, Inc. , 194 Wash.2d 1001, 451 P.3d 332 (2019).

Standard of Review

¶ 12 Washington policy favors arbitration. RCW 7.04A.060 ; Adler v. Fred Lind Manor , 153 Wash.2d 331, 342, 103 P.3d 773 (2004). This policy does not, however, lessen the court's responsibility to determine whether the arbitration contract is valid. Hill v. Garda CL Nw., Inc ., 179 Wash.2d 47, 53, 308 P.3d 635 (2013). The agreement to arbitrate is a contract, the validity of which courts review absent a clear agreement to not do so. Id . Whether or not a contract is unconscionable is a preliminary question for judicial consideration. Romney v. Franciscan Med. Grp. , 186 Wash. App. 728, 740, 349 P.3d 32 (2015).

¶ 13 A reviewing court reviews de novo a trial court's decision to compel or deny arbitration.

Gandee v. LDL Freedom Enters., Inc. , 176 Wash.2d 598, 602, 293 P.3d 1197 (2013) ; Satomi Owners Ass'n v. Satomi, LLC , 167 Wash.2d 781, 797, 225 P.3d 213 (2009). The burden of demonstrating that an arbitration agreement is not enforceable is...

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