It tried to cover every claim, forever - and that's exactly what sank it
A California appeals court just refused to enforce a car dealer's arbitration agreements, ruling they reached too far and gave the worker too little.
Arbitration agreements are one of HR's most common tools for keeping employment disputes out of open court. A new published California decision is a reminder that how those agreements are written can decide whether they hold up at all.
On June 5, 2026, the California Court of Appeal for the Third Appellate District backed a trial court's decision to throw out arbitration agreements signed by a former dealership worker. On July 2, 2026, the court certified the opinion for publication, meaning other courts can now cite it.
The worker had moved between two Knight Sacramento SU Inc. dealerships - Elk Grove Subaru and Elk Grove Volkswagen - between 2022 and 2024. In August 2024 she sued over wage and hour issues, both for herself and on behalf of a class of current and former employees.
Knight tried to move the dispute into private arbitration, citing standalone agreements the worker had signed. The trial court refused, finding the agreements "procedurally and substantively unconscionable" - unfair both in how they were presented and in what they said. Knight appealed, and lost.
Two drafting choices sank the agreements, and both are the kind of language that comes out of an HR or legal team's template.
The first was scope. The agreements made the worker arbitrate "any and all claims" tied to her employment "or any other interaction/relationship" with the company, now or in the future. The court said that reached well past anything to do with the job, and an agreement that broad could not stand.
The employer's defense of that language is the part HR will recognize. The company's human resources manager submitted a declaration explaining that employees bring "many different types of claims," so the agreements were written broadly to "capture" all of them. The court was not persuaded. Employers can build in a "margin of safety," it said, but the "business realities" behind it have to be spelled out in the contract or proven with facts. A general wish to cover everything did not clear that bar.
The second problem was fairness. The agreements forced the worker to arbitrate claims against a long list of "third-party beneficiaries" - the company's "owners, directors, officers, managers" and others - while those parties were not required to arbitrate their claims against her. The court called that one-sided.
Knight argued the deal became mutual once some third parties asked to arbitrate. But fairness is judged when a contract is signed, the court said, not by what happens later.
Knight's last argument was to cut the bad terms and enforce the rest. The court declined. Because the overreach and the imbalance went to the "central purpose" of the agreements, the whole thing was "tainted" and could not be saved.
The ruling does not decide the wage and hour claims themselves. It means only that the dispute proceeds in court rather than in arbitration.
The decision follows Cook v. University of Southern California, a 2024 case the court chose to apply. For anyone who owns arbitration language in an employee handbook or onboarding packet, it adds to a growing line of California decisions testing clauses that sweep in every possible claim, bind workers indefinitely, or protect a roster of third parties without offering anything back.
