While California employers have the right to require employees to sign arbitration agreements for any employment disputes that may arise, the rules around valid arbitration agreements continue to be an active source of litigation. For employers using arbitration agreements, they must be aware of how they present the agreement as much as what is in the agreement. In Fuentes v. Empire Nissan, Inc., No. S280256 (Feb. 2, 2026), the California Supreme Court clarified how to address arbitration agreements that have legibility issues.
A Densely Worded and Barely Legible Arbitration Agreement
While applying to work at Empire Nissan, Evangelina Fuentes was required to complete and sign numerous documents as part of an employment application packet. One document within this packet contained a provision mandating arbitration of “all disputes which may arise out of the employment context.”
The document itself had small, blurry text that made it nearly unreadable. In addition, the document’s arbitration provision was a single, densely formatted paragraph full of complex sentences with legal jargon and statutory references.
Fuentes was only given five minutes to review and sign all the documents in the employment packet and was not provided with an opportunity to ask questions. No one at Empire Nissan specifically told her one of the documents contained a mandatory arbitration agreement for employment disputes, and Fuentes didn’t receive a copy of what she signed.
Fuentes later signed two separate “confidentiality agreements” that allowed Empire Nissan to “seek any proper injunction” or “any other remedies available…at law or in equity” for taking business away from Empire Nissan or using or disclosing confidential information or trade secrets during her employment. The agreements were silent on whether claims may be brought to court or were subject to the arbitration agreement.
Fuentes was hired, and after about two and a half years of employment, she required a significant medical leave of absence. After a year on leave, she requested a brief leave extension before returning to work. Empire Nissan denied the request, terminating Fuentes’ employment. Fuentes filed a lawsuit, and Empire Nissan sought to compel arbitration under the agreement Fuentes signed as part of her employment application packet.
Competing Court Viewpoints
After Empire Nissan filed the motion to compel arbitration, Fuentes opposed it on the grounds that there wasn’t an arbitration agreement in the first place because of its illegibility and she had such little time to review it. Fuentes also argued that if an actual arbitration agreement was in effect, the agreement is unconscionable and therefore unenforceable.
The trial court addressed only Fuentes’ unconscionability argument, agreeing with her that the agreement was unconscionable. On review of whether the agreement is unconscionable, the courts must review procedural unconscionability, which is a review of how the agreement is provided to the employee, as well as substantive unconscionability, which is a review of what terms are included in the agreement. To be unenforceable, the agreement must be unconscionable in both procedure and substance, which the requisite levels of unconscionability vary depending on how unconscionable each area is.
The trial court determined that this case had a very high level of procedural unconscionability. The agreement was in a very hard to read and understand format, plus Fuentes was provided with very little time to review it with no opportunity to ask questions or negotiate terms.
With very high levels of procedural unconscionability, the agreement only needs low levels of substantive unconscionability to be unenforceable. The trial court found a low to moderate degree of substantive unconscionability because prior appellate and Supreme Court precedent found that “fine-print terms” can be indicative of that. Additionally, the trial court found that the “confidentiality agreements” excluded issues from arbitration in favor of Empire Nissan and that creates unfairness in the terms.
As a result of these findings, the trial court determined that the arbitration agreement was unenforceable. Empire Nissan appealed this ruling, and in a split decision, the Court of Appeal sided with Empire Nissan, finding that legibility can only be evaluated under the procedural unconscionability review and not also the substantive unconscionability review. Additionally, different from the trial court, the Court of Appeal construed the “confidentiality agreements” to be subject to arbitration anyway and thus the terms didn’t lack fairness. Without substantive unconscionability, the arbitration agreement is enforceable. Fuentes appealed to the Supreme Court.
California Supreme Court Sets the Record Straight
The California Supreme Court started its analysis on procedural unconscionability and came to the same conclusion as the lower courts. Due to how the agreement was presented and how it was formatted, it had a high degree of procedural unconscionability. On reviewing the “fine-print terms”, the Supreme Court clarified that while unfair terms can be hidden in “fine print” or in an otherwise difficult to read format, that alone doesn’t make the actual terms unfair. Substantive unconscionability requires that the terms are unfair in favor of the more powerful party in the agreement — in this case, the concern is whether the barely legible terms are more favorable to Empire Nissan. The Supreme Court determined the terms, couched in nearly illegible print, to still be otherwise fair and mutual.
The Supreme Court then evaluated whether the “confidentiality agreements” impacted the fairness of the agreement by allowing Empire Nissan to bring at least some employment- related disputes in court instead of arbitration. Central to whether the agreements are subject to arbitration is whether there was mutuality in the agreement to arbitrate the confidentiality issues.
The Supreme Court found that the factual record wasn’t sufficient to determine either way the parties’ intent with the “confidentiality agreements” and so held that the Court of Appeal went too far to say they were subject to arbitration. The Supreme Court remanded the issue back to the trial court to make findings on this issue, and if necessary, allow further development of the record.
Lessons for Employers
This case highlights long-standing issues that employers must consider when utilizing mandatory arbitration agreements by ensuring that both the way the agreement is presented and what the agreement requires are both fair. Employers should audit these practices and the substance of their agreements to ensure that should they need to be enforced, employers can do so confidently.
More importantly, employers must recognize that mandatory arbitration agreements are not just another onboarding document for employees to sign. They are legal contracts with substantial consequences if they are not executed properly. Due to this, employers should always consult with legal counsel about the formation and use of these agreements before doing so to avoid years of litigation over whether the agreement is valid in the first place.
Matthew J. Roberts, Associate General Counsel, Labor and Employment
CalChamber members can read more about arbitration agreements in “Offering Employment” in the HR Library. Not a member? Learn how to power your business with a CalChamber membership.
