A California court says employers can't sidestep fairness in arbitration—see what this means for your HR policies
A California appeals court on October 17, 2025, affirmed that an employer’s arbitration agreement can be invalidated if it is found to be unconscionable and unfair to employees.
The case involves Sarah Gurganus, who worked for IGS Solutions LLC, a company providing employee management services for various operational entities, including some retail locations. Gurganus was employed at a California facility from September 2021 to April 2023. When she started, her onboarding documents did not include an arbitration agreement. About five months later, on February 20, 2022, she was asked to electronically sign additional employment documents, including an arbitration agreement, a voluntary dispute resolution policy, and a confidentiality and non-disclosure agreement (CND).
The arbitration agreement stated that most employment-related disputes between Gurganus and IGS would be resolved by final and binding arbitration, with both parties giving up their rights to a jury trial. However, it excluded certain claims from arbitration, such as those seeking injunctive or declaratory relief regarding the use or unauthorized disclosure of confidential information. The agreement also contained a confidentiality provision, restricting disclosure of information to parties not involved in the arbitration hearing unless written approval was given. Employees could opt out of the arbitration agreement within 30 days of signing.
Gurganus alleged that she was required to sign these documents as a condition of continued employment and that the process was both surprising and oppressive. She stated that no one explained the documents to her or that she was giving up her right to file a lawsuit in court, and she did not feel she had a meaningful opportunity to negotiate or refuse.
After her employment ended, Gurganus filed a lawsuit against IGS, alleging disability discrimination, retaliation, failure to engage in the interactive process, failure to provide reasonable accommodations, retaliation under the California Family Rights Act, interference with CFRA rights, wrongful termination, and unlawful business practices under the unfair competition law. IGS moved to compel arbitration, arguing that all claims were subject to the arbitration agreement. The trial court denied the motion, finding the arbitration agreement both procedurally and substantively unconscionable. The court noted that the agreement forced employee claims into arbitration but allowed the employer to bring its preferred claims, such as those related to confidential information, in court. The confidentiality provision was also found to restrict employees from contacting or interviewing potential witnesses outside of the formal discovery process.
On appeal, the Court of Appeal affirmed the trial court’s decision. The appellate court agreed that the arbitration agreement and the CND, signed as part of the same transaction, should be read together to assess their overall effect. The court found that the agreements, taken together, created a dispute resolution process that lacked mutuality and was unfairly one-sided in favor of the employer. The court also rejected IGS’s argument that the agreement was voluntary simply because it allowed for an opt-out period, noting that asking an established employee to accept new terms without meaningful choice or consideration is not voluntary.
The decision, certified for publication, underscores for HR professionals the importance of ensuring that arbitration agreements and related policies are balanced, transparent, and genuinely voluntary. Agreements that disproportionately favor the employer or restrict employee rights may be found unenforceable by the courts, as demonstrated in this case.
