The California Supreme Court recently addressed whether the illegibility of an employment arbitration agreement can support a finding of substantive unconscionability in Fuentes v. Empire Nissan. The decision clarifies how courts should analyze difficult-to-read contracts when determining whether an arbitration agreement is enforceable.
The case arose after Evangelina Fuentes signed an employment packet with Empire Nissan that included an arbitration agreement requiring workplace disputes to be resolved through arbitration. The agreement was printed in very small and somewhat blurry font and was presented as part of a stack of onboarding documents. After Fuentes later filed a lawsuit against the company, Empire Nissan moved to compel arbitration based on the agreement she had signed.
The trial court denied the motion to compel arbitration. It found a high degree of procedural unconscionability, noting that the agreement was presented on a take-it-or-leave-it basis and was difficult to read due to the tiny font. The court also found a low to moderate level of substantive unconscionability, in part because related confidentiality agreements appeared to carve out certain claims that could benefit the employer.
The Court of Appeal reversed, concluding that issues such as small or blurry text relate only to procedural unconscionability and do not establish substantive unfairness.
The California Supreme Court largely agreed that formatting problems generally relate to procedural unconscionability. However, the Court emphasized that when an agreement is difficult to read, courts should closely examine its terms to ensure they are not unfair or one-sided. The Court also found that the Court of Appeal erred by relying on a pro-arbitration presumption when interpreting the agreements and by directing the trial court to compel arbitration without considering other outstanding issues.
The Supreme Court ultimately reversed and remanded the case, instructing the trial court to reconsider the arbitration agreement under the clarified unconscionability analysis.
