Can You Challenge an Unfair Arbitration Agreement in California?

It is pretty common for California employees to be handed an arbitration agreement when they start a job. Sometimes, it is not even optional; if you want the job, you have to sign the agreement. Sure, arbitration can help settle workplace disputes, but employers are prohibited from using these agreements to create an unfair system that makes it harder for you to stand up for your rights. 

A recent federal court case highlights this. In Gustin v. Club Demonstration Services, Inc., the court struck down an arbitration agreement that benefited only the employer. It is an important reminder that just because an agreement exists does not mean it is enforceable.

What Happened in the Case?

In this case, the plaintiff used to work for Club Demonstration Services (CDS), a company that provides in-store marketing services for Costco. After leaving CDS, he filed a class action alleging several wage-and-hour violations under California law. He claimed that CDS rounded workers’ time records, did not pay employees for time spent completing required health screenings, and violated labor laws affecting many people.

CDS tried to push the claims into arbitration, citing an agreement the plaintiff signed when he started working. However, the court denied that request. They decided the agreement was unconscionable and therefore unenforceable.

Why the Court Rejected the Arbitration Agreement

California courts look at the terms of an arbitration agreement and also examine how the agreement was presented. In this case, there were issues with both.

First, CDS presented the agreement to the employee during onboarding and made it clear he had to sign it, or he would not get the job. According to the court, the plaintiff had no real chance to negotiate, ask questions, or refuse to sign if he wanted the job. The document itself was long and packed with legal jargon that an ordinary employee would likely struggle to understand without legal help.

Second, the court determined that the agreement’s “bellwether” arbitration process unfairly benefited the employer. Under that process, only 10 employee claims could proceed at any one time, while the rest were stuck waiting. Employees whose cases were delayed couldn’t control when their claims would move forward, while CDS benefited by limiting its litigation costs and exposure.

Because these provisions created an unfair advantage for the employer, the court refused to enforce the arbitration agreement.

What Does This Mean for California Employees?

Just because you signed an arbitration agreement does not mean you are automatically blocked from taking your claims to court. California law requires that arbitration agreements be fair to both sides. If your employer handed you something unfair or packed the agreement with terms that only benefit them, a court might decide not to enforce it.

Whether your agreement holds up depends on the specifics, so do not assume you are out of options just because you signed on the dotted line.

Protecting Your Rights at Work

If your employer failed to pay you properly, denied meal or rest breaks, made you work off the clock, or broke other California employment laws, an arbitration agreement is not necessarily the end of the road. Talk to an experienced California employment lawyer. They can review the agreement, determine if it is enforceable, and break down your rights.