California Court Strikes Down Unfair Arbitration Agreement

Employment agreements should protect workers, not strip them of their rights. A recent California appellate decision reinforced this principle, rejecting an employer’s attempt to force arbitration through a contract stacked in its favor. The ruling highlights how courts are willing to intervene when companies use arbitration clauses to undermine employee protections under California law.

Employer’s Arbitration Agreement Deemed Unfair

A former employee sued her company for discrimination, harassment, retaliation, and wrongful termination under the California Fair Employment and Housing Act (FEHA). The employer attempted to move the case to arbitration, citing an agreement the worker signed during onboarding. However, the trial court found serious issues with the agreement and refused to enforce it.

The agreement contained multiple unfair provisions, including unreasonably short deadlines for filing claims, improper shifting of attorney fees, and a lack of mutual obligations. These terms created an uneven playing field, effectively limiting the employee’s ability to seek justice. The court determined that the agreement was a contract of adhesion—one that employees were required to accept without meaningful negotiation.

California Courts Strike Down Employer-Favored Arbitration Agreement

After the trial court rejected arbitration, the employer appealed. The California Court of Appeal upheld the lower court’s ruling, agreeing that the contract contained several unfair provisions. The California Supreme Court later reviewed the case, concurring that at least three provisions were unconscionable. However, rather than outright voiding the agreement, the high court sent the case back to the Court of Appeal to determine whether the unfair terms could be removed while keeping the rest of the contract intact.

On reconsideration, the Court of Appeal concluded that severing these provisions would not solve the problem. The court found that the arbitration agreement had been designed to benefit the employer overwhelmingly, making it fundamentally unfair. Since the flaws in the agreement were not limited to a few isolated provisions but reflected a broader pattern of overreach, the court upheld the trial court’s decision to reject the arbitration request entirely. This ruling reinforces that California courts take employee rights seriously and will not enforce agreements that employers use to strip workers of their legal protections.

This case sets an important precedent, reminding workers that not all arbitration agreements are legally binding. Employers cannot include provisions that unfairly favor them while limiting employee rights. If an arbitration agreement contains terms that reduce access to legal remedies, shift financial burdens unfairly, or force employees into an unjust process, courts may refuse to enforce it. Employees should be aware of their rights and seek legal guidance if they believe an arbitration agreement is being used against them.

How California Employees Can Fight Back Against Unfair Arbitration Agreements

Employers often include arbitration clauses in onboarding paperwork, making signing seem like another formality. Many workers do not realize that these agreements can limit their ability to seek justice in court. This case serves as a warning—arbitration is not always the only option, and California courts are willing to strike down agreements that unfairly restrict employee rights.

State law protects workers from contracts that impose excessive restrictions, create financial burdens, or favor the employer. If an arbitration clause limits your ability to file claims, shifts legal costs unfairly, or removes key protections, it may not be enforceable. Employees should review these agreements carefully and seek legal advice before signing. A poorly structured arbitration agreement can leave workers without the recourse they deserve, but legal options may still be available to challenge it.

Speak with an Employment Lawyer About Your Options

Employers cannot use arbitration agreements to strip workers of their legal rights. If you are facing workplace discrimination, harassment, or wrongful termination and your employer is forcing arbitration, you may have grounds to challenge it. Understanding your rights and taking action early can make a difference in the outcome of your case.

Call the Nourmand Law Firm, APC, today for a free consultation and take the first step toward asserting your rights.