California Court of Appeals Protects Worker Rights in Arbitration Agreement Case

Arbitration agreements are a common feature in many workplaces across California. Often, employers add these agreements to onboarding materials or online portals, often without clarifying the important rights employees may be signing away. A recent ruling from the California Court of Appeals serves as a crucial reminder that arbitration agreements must be fair, mutual, and clearly presented. Otherwise, they may not be enforceable.

Background of the Case

In this case, the plaintiff, whom, for purposes of this article, we will refer to as S.G., was an employee at a California branch of IGS Solutions. Five months into her job, IGS required S.G. to electronically sign a set of new employment documents, which included an arbitration agreement and a confidentiality and non-disclosure agreement (CND). No one explained these documents to her, and S.G. felt pressured to sign them to maintain her employment.

After her job, S.G. initiated a lawsuit claiming disability discrimination, retaliation, CFRA violations, wrongful termination, and unfair business practices. IGS sought to compel arbitration, asserting that the claims should be handled in private arbitration instead of in a public court. Both the trial court and the Court of Appeal disagreed and denied that request.

Why the Court Deemed the Arbitration Agreement Unenforceable

When determining whether an arbitration agreement is enforceable, California courts look at the process and terms of the contract. Judges assess whether the agreement was presented during a take-it-or-leave-it moment and whether it treats both sides equally. When an arbitration agreement contains terms favoring the employer, it may be considered unenforceable.

In this case, the California Court of Appeals determined that the arbitration agreement was unconscionable, meaning it was procedurally unfair (how it was presented) and substantively unfair (what its terms required).

• Procedural Unconscionability

The court found that the employer presented the arbitration agreement:

• Long after S.G. had started her job
• As a non-negotiable, take-it-or-leave-it document
• Without any explanation of the rights she was forfeiting
• While she was financially reliant on keeping her job

These factors made the agreement a classic contract of adhesion, which California courts scrutinize closely.

• Substantive Unconscionability

According to the court, the terms of the agreement were deeply unbalanced in the employer’s favor.

• Lack of mutuality: The court found that the arbitration agreement and CND together destroyed the mutuality of arbitration. S.G. was required to take all her claims to arbitration, while the employer was allowed to take its claims to court.
• Unfair confidential restrictions: Broad confidentiality rules barred S.G. from sharing information with anyone not involved in the arbitration, preventing witness contact and informal evidence-gathering, which the court found unfair and overly burdensome.

While sometimes, the court may simply cut out the problematic provisions of an arbitration agreement and enforce the rest, in this case, the court found that the agreement was permeated by unconscionability. In other words, it contained multiple unfair terms showing a systematic effort to disadvantage the plaintiff.

Contact a California Employment Lawyer

If you signed an arbitration agreement, especially long after you were employed, without explanation, or as a condition of keeping your job, a California employment lawyer can help you determine whether the agreement is legally enforceable and whether you still have the right to bring your case to court.