On February 2, 2026, the California Supreme Court issued a ruling on the validity of an employment arbitration agreement that has some good and bad news for employers. An understanding of the case will allow employers to draft legally compliant arbitration agreements.
Facts of the Case
When applying for a job, Evangelina Fuentes signed a document titled “Applicant Statement and Agreement.” The document included a mandatory arbitration provision.
The Agreement was printed in a very small font and its text was so blurry and broken up that it was nearly unreadable. The arbitration provision was a lengthy, densely printed paragraph consisting of complex sentences filled with legal jargon and statutory references.
The Agreement was part of an employment application packet that the employer gave Fuentes five minutes to review. Fuentes spent most of this time filling out the application. The company told her to hurry because the drug testing facility was about to close. She was not offered an opportunity to ask questions. She did not receive a copy of the Agreement.
After two years, Fuentes went on medical leave for cancer treatment. A year later, Fuentes requested a brief extension of her leave before returning to work. The employer terminated the employment relationship.
Court Proceedings
Fuentes filed a complaint in court alleging wrongful discharge. The employer responded with a motion to compel arbitration. The court denied the motion, ruling that the very high degree of procedural unconscionability (illegibility) in the Agreement supported a finding of substantive unconscionability as well.
The court also addressed confidentiality agreements Fuentes was required to sign. They permitted the employer to initiate legal proceedings in court in the event Fuentes violated her duty of confidentiality. These agreements had the effect of making the Agreement one-sided in favor of the employer.
The Court of Appeal reversed. It concluded that arguments about illegibility go exclusively to procedural unconscionability — not to substantive unconscionability,
Unconscionability
Both procedural and substantive unconscionability must be present to invalidate an arbitration agreement. These elements need not be present to the same degree. Courts apply a sliding scale analysis under which the more substantively oppressive an agreement is, the less evidence of procedural oppressiveness is required, and vice versa.
Procedural Unconscionability. For Fuentes, the presentation of the Agreement was unconscionable. The economic pressure to sign the Agreement was high. She was told to hurry. The font was extremely small and illegible. The text of the arbitration provision was complex and difficult for a layperson to read and understand. Under these circumstances, the Agreement was procedurally unconscionable because it was oppressive and created surprise to the unaware applicant for employment.
Procedural Unconscionability Does Not Indicate Substantive Unconscionability. However, the tiny print and almost illegible format of an agreement do not indicate that the agreement is unfair or substantive unconscionability. Font size and illegibility can provide a basis for requiring a lesser showing of substantive unconscionability in the sliding scale analysis. But because these factors do not affect the substance of an agreement’s terms, it cannot render a contractual term substantively unconscionable.
Courts Must Review Contracts Closely for Substantive Unconscionability if an Agreement is Procedurally Unconscionable. When an arbitration agreement includes a high degree of procedural unconscionability, a court must treat an arbitration agreement like any other contract and closely scrutinize the agreement’s terms for substantive unfairness. Ambiguities must be construed against the employer as the drafting party.
Mutuality. Mutuality refers to the binding nature of an agreement on both parties. The lack of mutuality may constitute substantive unconscionability.
The lack of mutuality is often a claim raised by plaintiffs opposing a motion to compel arbitration. While they are compelled to arbitrate any claim, employers are not similarly required to assert all claims against an employee in arbitration.
Fuentes’ employer required her to sign confidentiality agreements. Those agreements permitted the employer to file claims in court in the event of a breach of confidentiality.
Validity of an Agreement
The Supreme Court was also receptive to the claim made by Fuentes that because she could not read the Agreement, she did not really give assent to its terms. In other words, in some cases an employee may be able to successfully argue that due to the format and presentation of the agreement, the plaintiff did not have an opportunity to consent. Thus, the contract is invalid. The Court did not articulate the conditions under which an arbitration agreement was not validly entered into, however, it appears that many employees may challenge the contract’s validity based on the structure of the agreement (small font, blurred text, compexity of the text) and the inability of a party to fairly review and examine its contents (hurriedly sign the agreement).
Contact the attorneys at Fishman, Larsen & Callister if you need assistance drafting arbitration agreements for your California workplace. We can help you be in compliance with all workplace requirements and avoid costly lawsuits. The Fishman, Larsen & Callister legal team is knowledgeable and well-practiced in representing employers in California. See how we could potentially improve your case by calling us today.