Resisting Unconscionable Arbitration Agreements

Trevor Bryne1

Over the past few decades, it has become increasingly common for American corporations to require workers and consumers to sign arbitration agreements. Through these agreements, workers and consumers waive their right to pursue a lawsuit in court if they are harmed by the corporation’s misconduct. Instead, they must submit to a process called arbitration, in which legal disputes are resolved by a neutral third-party decision-maker. Many workers and consumers do not realize they have signed an arbitration agreement with a corporation–or what it would mean for them if they did. 

Because arbitration agreements are contracts, they must meet the standards of contract law to be considered valid and enforceable by a court. While courts typically uphold contracts, they have the authority to refuse to enforce a contract if they determine that it is “unconscionable”—or, in other words, so one-sided and unfair that no reasonable or informed person would agree to it. In the case where an arbitration agreement is deemed invalid due to unconscionability, the party opposing mandatory arbitration can retain the ability to pursue their claims in court.

Arbitration clauses aren’t limited to employment contracts. The same take-it-or-leave-it language increasingly shows up in consumer agreements, service contracts, severance agreements, and even rental and nursing-home paperwork, which is why the unconscionability doctrine matters well beyond the workplace. Under Cal. Civil Code § 1670.5, a court is not required to enforce any contract term — arbitration clauses included — that it finds unconscionable as a matter of law. So when is an arbitration agreement invalid? In California, it becomes invalid, or unenforceable, only when a court finds it both procedurally and substantively unconscionable — unfair in how it was presented and unfair in what it actually says.

In California, the court’s power to refuse to enforce an unconscionable contract is codified at section 1670.5 of the California Civil Code. To be considered unenforceable due to unconscionability, an arbitration agreement must be both “procedurally” and “substantively” unconscionable. Generally, procedural unconscionability refers to the circumstances surrounding the execution of the contract, while substantive unconscionability refers to the level of inherent fairness of the contract’s terms. 

Procedural unconscionability

To determine whether a contract is procedurally unconscionable, California courts will ask three questions:

  1. Was there adhesion?
  2. Was there surprise?
  3. Was there oppression?

In a contract of “adhesion,” the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favorable terms. To determine whether an arbitration agreement is a contract of adhesion, courts ask whether the more powerful party presented the arbitration agreement as a take-it-or-leave-it contract. For example, many employers force new employees to sign arbitration agreements before being hired, without providing the employees with any opportunities to negotiate. The employees have the choice of either signing the arbitration agreements in order to get the job, or finding work somewhere else. Because the arbitration agreements are presented to the employees as a condition of hiring, with no ability to negotiate, they are contracts of adhesion. 

“Surprise” refers to deceptive tactics that hide the terms of the arbitration agreement. For example, an arbitration agreement may include language that is vague and extremely difficult to understand, or it may hide terms through difficult-to-read fine print. Courts commonly find unconscionable surprise in an arbitration agreement where: (1) One party has difficulty reading English; and (2) They were not given enough time to carefully review the contract.

The factors  leading to unconscionable “oppression” in an arbitration agreement were outlined by the Supreme Court of California in OTO, L.L.C. v. Kho (2019). They include:2

  1. The amount of time the party is given to consider the proposed contract; 
  2. The amount and type of pressure exerted on the party to sign the proposed contract; 
  3. The length of the proposed contract and the length and complexity of the challenged provision; 
  4. The education and experience of the party; and 
  5. Whether the party’s review of the proposed contract was aided by an attorney.

Through analyzing these factors, several of which overlap with unconscionable surprise, courts attempt to determine whether a party had the power, time, and comprehension ability to knowingly enter into an arbitration agreement.

Substantive unconscionability

To determine whether an arbitration agreement is substantively unconscionable, courts analyze the actual terms of the arbitration agreement for fairness. One of the most common forms of substantive unconscionability is unilateral contract terms that only affect one party, and not the other. For example, employers with arbitration agreements will commonly mandate arbitration for the types of claims commonly brought by employees (e.g., discrimination, retaliation, and wrongful termination), but permit lawsuits in court for claims commonly brought by employers (e.g., protection of intellectual property). When only the employer has the ability to file a lawsuit, courts may find substantive unconscionability because the terms of the contract are one-sided.

Courts also look to the rules and procedures of the proposed arbitration process to analyze substantive unconscionability. For example, courts may find it substantively unconscionable for an arbitration agreement to unreasonably limit how much “discovery”—i.e., evidence-gathering—can be conducted in the arbitration. Limiting the arbitration’s hearing time, or the number of witnesses that can be called, also may be considered substantively unconscionable.

More broadly, courts will find arbitration agreements substantively unconscionable if they effectively limit a party’s ability to assert their legal rights. For example, if an arbitration agreement limits the types of claims, or the remedies, that a party can assert, it may be held substantively unconscionable. An arbitration agreement that unduly burdens a party with arbitration fees may also be held substantively unconscionable. Furthermore, unreasonably limiting the statute of limitations—the time in which a claimant can bring a claim after being harmed—will also be considered substantively unconscionable. 

Recent California Decisions

California courts continue to actively police arbitration agreements. Recent decisions illustrate how the procedural/substantive framework plays out in practice:

  • Ramirez v. Charter Communications, Inc. (Cal. 2024) — The California Supreme Court found procedural unconscionability where an employment contract was presented purely as a take-it-or-leave-it agreement, and substantive unconscionability where the agreement steered employee claims (like discrimination and wage disputes) into arbitration while preserving the employer’s right to sue in court.
  • Hasty v. American Automobile Association of Northern California, Nevada & Utah (2023) — The Court of Appeal declined to sever the unconscionable provisions and instead voided the entire agreement, holding that the unfairness was too pervasive to fix piecemeal.
  • Silva v. Cross Country Healthcare, Inc. (2025) — The court held that an arbitration agreement must be read together with other onboarding paperwork signed at the same time, meaning unfair terms buried in a separate employment agreement can still make the arbitration clause unenforceable.
  • Mayers v. Volt Management — An arbitration agreement was found unconscionable in part because the employer required arbitration under a specific set of rules but never gave the employee a copy of — or access to — those rules.
  • Fuentes v. Empire Nissan, Inc. (Cal. 2026) — A useful caution for readers: the California Supreme Court clarified that small or hard-to-read print alone does not automatically make an agreement unconscionable. Illegible print can support a finding of procedural unconscionability, but a court still must also find the agreement’s actual terms substantively unfair before it can refuse to enforce it.

Is an unconscionable arbitration agreement unenforceable?

As described above, an arbitration agreement must be both procedurally and substantively unconscionable to be considered unenforceable by a court. Courts often rely on a “sliding scale” approach when measuring each type of unconscionability. As the Supreme Court of California explained in Armendariz v. Foundation Health Psychcare Services, Inc. (2000)3, “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” In other words, procedural and substantive unconscionability are both weighted together as a whole, and if one is more obviously present, it can be easier to prove unconscionability even with a smaller amount of the other.

A finding of procedural and substantive unconscionability, however, does not guarantee that a court will invalidate an entire arbitration agreement. Courts have discretion to either invalidate an entire arbitration agreement, or to “sever” just the specific provisions of the agreement it finds unconscionable. In other words, if an arbitration agreement has just one provision that the court finds unconscionable, the court may choose to invalidate that provision, but enforce the rest of the arbitration agreement. On the other hand, if the issues of unconscionability are so pervasive that the arbitration agreement is inherently oppressive, the court may choose to invalidate the entire contract.

Plaintiffs trying to show that an arbitration agreement is unenforceable due to unconscionability have a difficult undertaking. Courts tend to be very hesitant to invalidate contracts between two private parties. However, if a plaintiff unwittingly entered into an arbitration agreement due to coercion or deception, or if the terms of the arbitration agreement undermine the plaintiff’s ability to vindicate their rights, courts can and sometimes do step in and invalidate the contract. In a time where many corporations use mandatory arbitration agreements as a means to avoid consumer and employment lawsuits, the doctrine of unconscionability provides a potential avenue to justice for workers and consumers who are harmed by corporate misconduct. 

FAQs

When is an arbitration agreement invalid?

An arbitration agreement is invalid, or unenforceable, when a California court finds it both procedurally and substantively unconscionable under Cal. Civil Code § 1670.5 — meaning it was both presented unfairly (through adhesion, surprise, or oppression) and its actual terms are one-sided. A court can void the entire agreement or, more often, sever just the offending provisions and enforce the rest.

When are arbitration agreements not enforceable?

Beyond unconscionability, an arbitration agreement is not enforceable if there was no valid contract in the first place (for example, no mutual agreement or no consideration), if the agreement doesn’t actually cover the type of claim being raised, or if enforcing it would waive a substantive right guaranteed by state or federal statute. Courts also decline to enforce provisions that unreasonably limit discovery, cap remedies, shorten a legal statute of limitations, or impose arbitration costs the employee or consumer could not reasonably be expected to pay.

Can I sue if I signed an arbitration agreement?

Possibly. Signing an arbitration agreement does not automatically end your ability to pursue a claim — it depends on how the agreement was written, whether it’s enforceable under the unconscionability standard above, and whether your specific claim falls within its scope. For example, workers with wage and hour disputes or FMLA retaliation claims may still be able to sue if the agreement is procedurally and substantively unconscionable, or if the claim falls outside what the agreement actually covers. It’s also worth knowing that even a binding arbitration clause generally does not stop you from filing a charge with a government agency, such as the California Civil Rights Department or the EEOC, before or instead of arbitration.

This answer targets “can i sue if i signed an arbitration agreement” as an exact phrase in the H3, plus internal links to Wage and Hour, FMLA, and the existing “Can I Sue My Employer in California?” blog post (see Section 3).

What is procedural unconscionability?

Procedural unconscionability looks at how an arbitration agreement was presented and signed — not what it says. California courts examine whether the agreement was offered on a take-it-or-leave-it basis (adhesion), whether its terms were hidden or hard to understand (surprise), and whether the signer was pressured, rushed, or denied the chance to have an attorney review it (oppression). Procedural unconscionability alone is not enough to invalidate an agreement; a court must also find the agreement’s terms are substantively unfair.

Our attorneys at Valerian Law take the time to understand your needs and carefully examine all details surrounding your case in order to provide you with effective solutions. Call us at 888-686-1918 to speak with one of our experienced attorneys.

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1 Trevor Bryne is a third year law student at Stanford Law School as of spring 2023. Trevor recently completed a stint as Law Clerk at Valerian Law.

2 8 Cal. 5th 111.

3 24 Cal. 4th 83.

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