Arbitration Clauses in California: Complex Enforceability
Federal Preemption and California's Complicated Landscape
Arbitration clause enforceability in California sits at the intersection of federal and state law. The Federal Arbitration Act (FAA) generally favors enforcement of arbitration agreements, but California has enacted laws and developed case law that push back on mandatory arbitration in certain contexts.
AB 51 and Employment Arbitration
California passed AB 51 (Labor Code Section 432.6) in 2019, which prohibited employers from requiring employees to agree to arbitration as a condition of employment. However, this law has been subject to extensive litigation. The Ninth Circuit in Chamber of Commerce v. Bonta has addressed its enforceability, with significant portions being preempted by the FAA. The legal status continues to evolve, so checking current case law is essential.
The Unconscionability Doctrine
California courts are among the most active in the country in applying the unconscionability doctrine to arbitration agreements, following the framework from Armendariz v. Foundation Health Psychcare Services (2000). An arbitration clause may be struck down if it is both:
- Procedurally unconscionable: The weaker party had no meaningful opportunity to negotiate (e.g., take-it-or-leave-it contracts, fine print, no time to review)
- Substantively unconscionable: The terms are unreasonably one-sided (e.g., employer can go to court but employee cannot, employee pays excessive costs, limited discovery)
Minimum Fairness Requirements (Armendariz)
For employment arbitration clauses to survive in California, courts generally require:
- Neutral arbitrator selection
- Adequate discovery rights
- Written arbitration award
- All remedies available in court must be available in arbitration
- Employer must pay arbitration costs beyond what court filing would cost
Red Flags
- Clauses hidden in onboarding paperwork without clear notice
- One-sided provisions allowing only the employer to go to court
- Cost-shifting provisions requiring the employee to pay arbitration fees
- Waivers of class action or representative PAGA claims (special rules apply)
- Extremely short statutes of limitation for bringing claims
When to Consult a Lawyer
Consider consulting a California employment attorney if you signed an arbitration agreement and want to understand your rights, if you believe the agreement was presented unconscionably, or if you have a workplace dispute and are unsure whether you must arbitrate.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.