Supreme Court Clarifies Rules Around Illegible Arbitration Agreements: What California Employers Need to Know

California employers frequently rely on arbitration agreements to resolve employment disputes outside of the court system. However, a recent California Supreme Court decision serves as an important reminder that the enforceability of these agreements depends not only on what the agreement says, but also on how it is presented to employees. In Fuentes v. Empire Nissan, Inc. (2026), the Court addressed whether an arbitration agreement could be enforced when the document itself was difficult to read and presented under rushed onboarding conditions.

In this case, employee Evangelina Fuentes was required to complete and sign numerous onboarding documents as part of her employment application process. One of those documents contained a mandatory arbitration provision covering employment-related disputes. The agreement was presented in small, blurry text formatted as a dense paragraph filled with legal terminology and statutory references. Fuentes was given approximately five minutes to review and sign the entire packet, was not specifically informed that she was agreeing to arbitration, was not given an opportunity to ask questions, and did not receive a copy of the signed documents. After her employment was later terminated following a dispute involving medical leave, Fuentes filed a lawsuit, and the employer attempted to compel arbitration based on the agreement she signed during onboarding.

California courts analyze arbitration agreements using two legal standards: procedural unconscionability and substantive unconscionability. Procedural unconscionability focuses on how the agreement is presented to the employee, while substantive unconscionability evaluates whether the contract terms themselves are unfair or overly one-sided. The California Supreme Court agreed with the lower courts that the agreement demonstrated a high degree of procedural unconscionability due to its poor legibility, dense formatting, and the limited time provided for review. However, the Court clarified that illegibility alone does not automatically make contract terms unfair. Substantive unconscionability requires proof that the agreement’s terms favor one party over the other in an unjust manner. Despite the formatting issues, the Court determined that the arbitration provisions themselves appeared mutual and facially fair.

The Court also reviewed whether separate confidentiality agreements signed by the employee allowed the employer to pursue certain claims in court rather than arbitration, potentially creating an unfair advantage. Because the factual record was insufficient to determine the parties’ intent regarding those agreements, the Supreme Court remanded the case back to the trial court for further review. As a result, the enforceability of the arbitration agreement will depend on additional findings regarding fairness and mutuality.

This decision reinforces several important lessons for employers. Arbitration agreements must be clear, readable, and understandable, and employees should be provided adequate time to review documents before signing. Employers should ensure arbitration provisions are clearly explained during onboarding and that employees receive copies of executed agreements. Additionally, related employment agreements should be reviewed carefully to ensure they do not unintentionally undermine mutual obligations or create perceived unfairness.

Mandatory arbitration agreements should not be treated as routine onboarding paperwork. Courts continue to closely scrutinize both the process used to obtain employee consent and the substance of the agreement itself. Employers are encouraged to periodically audit onboarding practices to confirm that arbitration agreements are written in a legible font, use plain language where possible, are clearly identified, and are presented in a manner that allows employees a meaningful opportunity to review and understand the terms. A poorly executed arbitration agreement can ultimately lead to costly litigation, defeating the purpose of arbitration altogether.

Centralize HR recommends that employers review arbitration agreements and onboarding procedures in coordination with HR professionals and legal counsel to ensure compliance with evolving California standards and to reduce unnecessary legal risk.