Bottom Line

The Supreme Court of California has signaled that employers should expect closer judicial scrutiny of arbitration agreements that are difficult to read or presented in a manner that limits employee understanding. 

While formatting defects alone will not render an agreement unconscionable, courts may more readily invalidate an otherwise enforceable arbitration agreement where these defects create a high degree of procedural unconscionability and are coupled with even modest substantive unfairness.

Employers should treat this decision as a reminder that arbitration agreement enforceability depends not only on what the agreement says, but also on its wording, formatting, and overall presentation to employees.  

The Decision

In Fuentes v. Empire Nissan, the Supreme Court of California reversed an appellate court's ruling that enforced an employer's arbitration agreement contained in an employment application. The arbitration agreement at issue was printed in extremely small, blurry font, embedded in a dense paragraph containing technical wording, and provided to the applicant with only five minutes to review.

The Court clarified that illegibility is generally not part of the substantive unconscionability analysis, which focuses on the fairness of the contract itself. However, the Court noted that where there is a high degree of procedural unconscionability, it creates "significant oppression and [an] unusually high degree of surprise…undermin[ing]…policies that normally favor enforcement." Under California's sliding-scale framework, significant procedural defects may require only a minimal showing of substantive imbalance to render an agreement unenforceable.

In reaching this decision, the Supreme Court of California also directed the trial court to reconsider whether related confidentiality agreements created ambiguity regarding the scope of mandatory arbitration, emphasizing that conflicting employment documents may undermine an arbitration agreement's enforceability. 

Key Implications for Employers

• Presentation Is a Litigation Risk
  • Agreements presented in visually inaccessible formats or under compressed timelines invite judicial skepticism and increase the likelihood of challenges.
• Procedural Defects Carry Greater Weight in California
  • Employers should assume courts will evaluate the employee's signing experience, including readability, clarity, and the opportunity for meaningful review.
• Consistency Across Employment Documents Is Critical
  • Ambiguities created by overlapping or inconsistent agreements are likely to be construed against the drafting employer.
• Arbitration Agreements Are Not Immune From Judicial Examination
  • Although California favors arbitration, courts will not enforce agreements that appear oppressive or surprising to the employee at the time of signing.

Recommended Employer Actions

• Audit arbitration agreements to confirm readable font size, logical formatting, and plain structural design.
• Provide employees adequate time to review agreements and ask questions before signing.
• Harmonize onboarding documents to ensure arbitration provisions are consistently reflected across related agreements.
• Avoid dense legal drafting that may impair comprehension.
• Document the rollout process to demonstrate fairness in contract formation if later challenged.

For multi-state employers, adopting California-level standards nationwide may reduce enforcement risk and operational complexity.

Takeaway

Currently, there is no need to sound the alarm, as the Court's decision does not weaken arbitration as a dispute-resolution mechanism. Instead, it reinforces a practical reality and reminds us that agreements perceived as inaccessible or confusing are less likely to withstand challenge.

Employers should view readability and transparency not merely as drafting preferences, but as core components of an enforceable arbitration strategy.