|
Some contracts include a "one-sided attorneys' fee clause." You will often find these in contracts where there is unequal bargaining power such as leases, consumer financing contracts and telecom contracts. A one-sided attorneys fee clause only allows one party (the party with the weaker bargaining power) to recover attorneys' fees and costs in the case of a dispute and reads something like this: "The Company may institute immediate action to enforce the payment of charges due and owing it, including the pursuit of all remedies available in law or equity. Customer will be responsible for paying any collection and attorney fees reasonably incurred by the Company in seeking payments owed by Customer." Not so fast. Under Washington law, courts are required to treat these one-sided attorneys' clauses as reciprocal with the award of attorneys fees going to the prevailing party regardless of what the contract says:
So, in the event your contract includes a one-sided attorneys fee clause, just know that the court is required to award attorneys fees and costs to you regardless of this unfair contractual term being a part of your contract. Contact Mark D. Walters When Governor Jay Inslee signs HB 1450, which is 100% expected, Washington State law governing non-competition agreements will shift significantly pro-employee and pro-independent contractor. Once signed by Governor Inslee, this law will become effective on January 1, 2020.
The very first section of HB 1450 sets the tone: "The legislature finds that workforce mobility is important to economic growth and development [and] that agreements limiting competition or hiring may be contracts of adhesion that may be unreasonable." HB 1450 defines a non-competition covenant to include "every written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind." (Note the inclusion of both written and oral agreements in this very broad definition; see exclusions at the Note below). Under this upcoming law:
Under this new statute, employee non-competition agreements are void and unenforcible unless:
For Washington based employees and independent contractors, non-competition covenants are void if they require adjudication outside of Washington or deprive the person of the protections under the new law. This new law includes the following remedy provisions, which are very pro-employee and pro-independent contractor:
Thus, even in cases where the court or arbitrator modifies, or blue pencil's the agreement, the employer is still on the hook for paying statutory remedies. Once signed, this law will become effective on January 1, 2020; however, it can be retroactively applied to non-competition agreements that were entered into before January 1, 2020, under two circumstances:
Note: The following are excluded from the definition of a non-competition covenant:
A plaintiff must prove the following five elements in a tortious interference with a business expectancy case: (1) the existence of a valid business expectancy; (2) that the defendant had knowledge of that business expectancy; (3) an intentional interference inducing or causing termination of the expectancy; (4) that the defendant interfered for an improper purpose or used improper means; and (5) resultant damage.
Element One: Existence of a Business Expectancy: This first element requires proof of something less than an enforceable contract, though a contract is often involved (i.e. non-competition or non-disclosure agreement). For instance, a prospective contractual or business relationship that would be of economic value such as an prospective customer, vendor or supplier. Here, you only have to show that the future business opportunity is a reasonable expectation and not merely wishful thinking. Element Two: Knowledge of the Expectancy: The second element requires only for the defendant to have known of facts giving rise to the presence of the business expectancy, and the facts need to show the defendant had awareness of “some kind of business arrangement.” Element Three: Intentional Interference Inducing or Causing a Breach or Termination of the Expectancy: For the third element, you need to show that the defendant desired to bring it about or that the defendant knew that the interference was certain or substantially certain to occur as a result of the defendant’s action. Element Four: Interfered with Improper Means: On this forth element, you need to show that the defendant acted with improper motive, improper means, or both.” Improper means,” means the defendant had a duty not to interfere. To establish such a duty, the plaintiff may point to a restrictive covenant in a contract, a statute, regulation, recognized common law, or established standard of trade or profession. Element Five: Resultant Damage: In all cases, the plaintiff must prove damages with reasonable certainty. This means you must produce evidence sufficient to support the claim that allows a reasonable basis for estimating the without mere speculation or conjecture. For my lawyer and law student followers, here are a few cases on point: Pac. Nw. Shooting Park Ass'n, 158 Wn.2d 342, 350, 144 P.3d 276 (2006). Scymanski v. Dufault, 80 Wn.2d 77, 83, 491 P.2d 1050 (1971). Newton Ins. Agency & Brokerage, Inc. v. Caledonian Ins. Grp., Inc., 114 Wn. App. 151, 52 P.3d 30 (2002). Life Designs Ranch. Inc. v. Sommer, 191 Wn. App. 320, 364 P.3d 129 (2015) Calbom v. Knudtzon, 65 Wn.2d 157, 165, 396 P.2d 148 (1964). Pleas v. City of Seattle, 112 Wn.2d 794, 804-05, 774 P.2d 1158 (1989). Contact Mark D. Walters Judge Weinstein of the District Court for the Eastern District of New York has described the four general types of online contracts. These are: (1) Browsewrap; (2) Clickwrap; (3) Scrollwrap; and (4) Sign-in-wrap agreements. Berkson v. Gogo LLC, 97 F. Supp. 3d 359, 394-402 (E.D.N.Y. 2015). Briefly summarized:
Browsewrap agreements "can take various forms but basically the website will contain a notice that—by merely using the services of, obtaining information from, or initiating applications within the website—the user is agreeing to and is bound by the site's terms of service." United States v. Drew, 259 F.R.D. 449, 462 n.22 (C.D. Cal. 2009). Because of the passive nature of acceptance in browsewrap agreements, courts closely examine the factual circumstances surrounding a consumer's use. "Despite their ubiquity, browsewrap agreements are still relatively new to courts." Be In, Inc. v. Google Inc., No. 12-CV-03373, 2013 U.S. Dist. LEXIS 147047, 2013 WL 5568706, at *7 (N.D. Cal. Oct. 9, 2013). For an internet browsewrap contract to be binding, consumers must have reasonable notice of a company's "terms of use" and exhibit "unambiguous assent" to those terms. Specht, 306 F.3d at 35; see also Be In, 2013 WL 5568706, at *6-8 (collecting cases). Clickwrap agreements "necessitate an active role by the user of a website. Courts, in general, find them enforceable. Drew, 259 F.R.D. at 462 n.22. "Clickwrap agreements require a user to affirmatively click a box on the website acknowledging awareness of and agreement to the terms of service before he or she is allowed to proceed with further utilization of the website." Id. By requiring a physical manifestation of assent, a user is said to be put on inquiry notice of the terms assented to." Scrollwrap agreements requires users to physically scroll through an internet agreement and click on a separate "I agree" button in order to assent to the terms and conditions of the host website. Sign-in-wrap agreements couples assent to the terms of a website with signing up for use of the site's services. Contact Mark D. Walters You will often find a provision in a contract that sets a pre-determined dollar amount one party will pay the other if there is a breach of contract. These are called liquidated damages provisions. You will find them in construction contracts, leases, any many other types of contracts.
Under Washington State law, true liquidated damages clauses, those that are not penalties, are favored and will be upheld. Washington court have held that liquidated damages agreements that are fairly and understandingly entered into by experienced, equal parties with a view to fair compensation for the anticipated loss should be enforced. However, if the parties to the contract are not on equal footing, or if the amount stated is a penalty with no reasonable relation to actual damages will be construed as a penalty, and the liquidated damages provision might not be enforced. As you can see, there is room for legal positioning and several defensive arguments that might apply in a breach of contract case concerning a liquidated damages provision, so it's best to understand the law before inserting one in your contracts. Contact Mark D. Walters "What is the Feedback Clause?
The Feedback Clause has its variations, but it typically reads something like this: Any ideas, suggestions, comments one party makes or delivers to the other party that concerns the other party's products or services ("Feedback") may be used and commercially exploited by the party receiving the Feedback. Why is the Feedback Clause Used?
Contact Mark D. Walters Another question that comes up pretty offten is this: Are oral contracts enforceable in Washington State? With some important exceptions the answer is: yes, if the oral contract is supported by sufficient legal consideration.
If there is a dispute over the oral contract, the existence and proof of the oral contract can be established by either direct or circumstantial evidence, and this is generally a question of fact. This is often difficult to do. Further, because the existence and proof of an oral contract are usually questions of fact, witness credibility is paramount. This means if one party to the dispute raises a credibility issue in his or her opponent, the case cannot be dismissed on summary judgment and the case has to be decided at trial. While not an exhausitive list, the following situations require written contracts to be enforceable in Washington State:
Contact Mark D. Walters New Law Coming January 1, 2020 - See Big Changes Coming to Washington State on Non-Competition Agreements.
Are non-compete agreements enforceable in Washington State is a question I get asked quite frequently, and here’s the answer: Washington courts will enforce employee non-competition agreements if they are validly formed and are reasonable. I know; not a satisfying answer, but a lot of what we lawyers do is analyze the “reasonableness” of a given situation or contract. Here’s a bit of case law to help you understand how lawyers and courts draft and review non-competition clauses in employment contracts: "Generally, restrictive covenants in employment contracts are enforceable so long as the restrictions therein are "not greater than are reasonably necessary to protect the business or good will of the employer, even though they restrain the employee of his liberty to engage in a certain occupation or business, and deprive the public of the services, or restrain trade." . . . In examining reasonableness, the court will look to the extent of the restriction, the length of time the restriction is in effect, and the geographic area covered. . . . The court in Racine employed a three-part test to determine if: 1) the restraint is necessary for the protection of the business or good will of the employer; 2) the restraint on the employee greater than is reasonably necessary; and 3) the degree of injury to the public from the loss of the service and skill of the employee is great enough to warrant nonenforcement of the covenant." So, when drafting your non-competition clause, the factors to keep in mind if you want your agreement to be enforceable are:
In addition, each of these factors will be analyzed on a case-by-case basis with the following tests in mind:
The Extent of the Restriction This factor is poorly named and described. It should be described as “what is the restriction? Here, the types of restrictions can run the full course of human imagination, but here are a few common ones:
The Length of Time the Restriction is in Effect In general, the longer the restriction lasts, the harder it will be to enforce in Washington. Having said that, it is common in Washington for courts to uphold employee non-competition clauses that run 12 months and in Racine, the court enforced a 36-month restriction on soliciting or performing services for former clients. The Geographic Area Covered This is an area where it is best to not over-reach when drafting the non-competition language. If you only solicit or conduct business in the Bellingham to Seattle corridor, and the company has no plans of growing beyond that corridor, don’t restrict the employee from working for a competitor in the United States of America. In this situation, the court would likely find that the non-competition clause is not enforceable. You could have the same issue under this scenario if you attempt to restrict the employee from working for all competitors in the Pacific Northwest or the state of Washington. Non-competition agreements are enforced on a case-by-case basis in Washington. Be sure to talk to your lawyer about these issues. Contact Mark D. Walters All contracts, if they are to be enforceable, must be supported by a thing called legal consideration. Courts require the contract to include “a promise to render a stated performance in exchange for a return promise being given.” These exchanges of commitment are called “legal consideration.”
Let’s look at Labriola v. Pollard Group, Inc., 152 Wn.2d 828, 100 P.3d 791 (2004). In this case, the Washington State Supreme Court held that an employee non-compete agreement was unenforceable because it was not supported by NEW and independent legal consideration upon execution by a long-time employee. The court stated that a "noncompete agreement entered into after employment will be enforced if it is supported by independent consideration. . . . Independent, additional, consideration is required for the valid formation of a modification or subsequent agreement. There is no consideration when "one party is to perform some additional obligation while the other party is simply to perform that which he promised in the original contract." In this case, the employer told the employee that he could keep his job under the same terms of employment if he signed the non-complete agreement, and that he would be terminated if he did not sign the non-compete agreement. The court found that this was not sufficient consideration to make the non-compete enforceable because the employer gave nothing new in exchange for the new contractual restriction on the employees post employment job opportunities. So even in cases where parties have an ongoing relationship and one party wants to obtain new binding commitments from the other, for the new commitments to become legally enforceable as a contract, they must be supported by new legal consideration. In the Labriola v. Pollard Group, Inc. case, if the employer paid the employee something new in exchange for the new non-complete restriction, the employer would have had a much stronger case and might have even won the lawsuit. Furthermore, the contract document should be viewed and drafted as exhibit number 1 to a breach of contract lawsuit. To avoid consideration disputes, it is a good idea to spell out in the contract the fact that legal consideration was provided and received. Here’s an example: "Company acknowledges by its signature below that this Agreement is supported by new, valuable, adequate and sufficient consideration, the receipt of which Company acknowledges by its authorized signature below." If the Company signs the Agreement, and there is a dispute later, the Company will have a hard time convincing the court that legal consideration was not provided. Contact Mark D. Walters In Washington State, where I practice law, the general rule is that each side must pay their own attorneys' fees unless one of the exceptions to the rule applies. And, there are only a few exceptions to this rule.
Contractual Attorneys' Fee Provision - If the written contract states that the prevailing party will be awarded attorneys' fees, the judge or arbitrator will award attorneys' fees. If the contract is silent on attorneys' fees, the judge or arbitrator will only award attorneys' fees if one of the other exceptions applies. But, judge and arbitrators will commonly award "reasonable attorneys' fees" and the amount awarded will often be less than the actual attorneys' fees incurred. Be sure to talk to your lawyer about this issue so you understand it at both the contract drafting stage and at the pre-litigation decision making stage. Statutory Attorneys Fees - There are quite a few statutes in Washington that allow for the recovery of attorneys' fees. For example, the Washington Law Against Discrimination allows the party claiming injury (not the defendant) the right to recover reasonable attorneys' fees. Similarly, the Washington Consumer Protection Act allows the consumer the non-reciprocal right to recover reasonable attorneys' fees. In addition, for lawsuits where the amount in dispute is less than $10,000.00, RCW 4.84.250, allows the judge to award reasonable attorneys fees. Court Rule Attorneys' Fees - There are a few court rules that authorize the court to award attorneys' fees during a lawsuit. For example, Rule 37 of the Washington Court Rules authorizes the court to award attorneys' fees to a party who is forced to bring a motion to compel their opponent to engage in discovery. This is a sanction that the obstinate party is forced to pay for not following the rules of discovery. Recognized Basis in Equity - In rare cases, a party can recover attorneys' fees from a party who engages in bad faith litigation conduct. There are three types of bad faith litigation conduct: 1) pre-litigation misconduct, where a party engages in bad faith conduct that wastes private and judicial resources and forces a legal action to enforce a clearly valid claim or right; (2) procedural misconduct, where a party engages in bad faith conduct during the course of the lawsuit; (3) substantive bad faith, where a party intentionally brings a frivolous clam, counterclaim or defense for an improper motive such as harassment. Common Fund - Another equitable basis for recovering attorneys' fees is where a party brings an action and creates or preserves a common fund for the benefit of others as well as the party bringing the action. So there you have it. These are the exceptions to the rule that each side must pay their own attorneys' fees in Washington State. Mark D. Walters | Copyright 2015 Contact Mark D. Walters |