In Velarde v. Monroe Operations, LLC (June 2025, No. G063626), a California Court of Appeal invalidated an employer’s arbitration agreement due to procedural unconscionability – meaning it was not struck down for its terms, but for the manner in which it was presented to the employee.
The employer required that the employee review and sign a five-page arbitration agreement quickly and before she could start work. Further, the arbitration agreement was buried alongside more than 30 other onboarding documents and forms. When the employee stated she was confused about the agreement, the employer’s Human Resources Manager told her that the purpose of the agreement was to “help us resolve any issues without having to pay lawyers,” which was not accurate since the agreement expressly stated that the parties to the agreement would bear their own attorneys fees.
Taken together, the inadequate time for the employee to review the agreement and the employer’s misrepresentation of the agreement’s terms (even if the misrepresentation was not intentional) rendered the agreement procedurally unconscionable and unenforceable.
The take aways for employers cannot be understated:
- Collaborate with legal counsel to create clear, accurate, and objective talking points on the employment arbitration agreement – so employees receive precise information.
- Ensure employees responsible for discussing arbitration agreements with colleagues are fully trained on the key talking points. Develop a procedure whereby, if an employee asks a question about the agreement not covered by an approved talking point, the question will be escalated to management who can consult with legal counsel. This reduces the risk of misrepresenting the agreement to employees.
- Include a clause in offer letters for new hires stating the requirement of an arbitration agreement and attach the agreement so candidates can review it before their first day of work.
- As a reminder, to avoid further enforceability issues, arbitration agreements should be rolled out to employees in hard copy versus electronically. Employers who wish to roll out electronic arbitration agreements should work with legal counsel to ensure their processes are legally sound and employee electronic signatures are enforceable.
- Lastly, arbitration agreements should be translated for non-English speaking employees so that employees understand what they are signing.
Do not hesitate to contact Duggan McHugh for assistance with your arbitration agreement roll out procedures, preparation of objective talking points regarding the agreement, or to review your arbitration agreements for legal compliance.