Think back to your first day at work. Somewhere in that stack of paperwork, between the tax forms and the handbook acknowledgment, there was probably a page that said something about arbitration. Most people sign it without reading it. Many never get a copy. And most workers only find out what it means years later, when something goes wrong and they learn they agreed to give up their right to go to court.
If that sounds like you, here is the good news: the rules around forced arbitration in California have been moving, and mostly in the direction of fairness. Over the past year, the California Supreme Court decided two major arbitration cases, and a line of appellate decisions on sexual harassment claims became settled law. Underneath those recent decisions sits an older framework that still decides most cases and that almost no plain-English summary mentions. This is what the rules actually are, for both workers and employers.
First, the Basics: What Is Forced Arbitration?
Arbitration is a private process for resolving legal disputes. Instead of a judge and jury in a public courtroom, a hired arbitrator, often a retired judge, hears the case and issues a decision that is usually final, with very limited rights to appeal.
A mandatory arbitration agreement is a contract, usually signed at hiring, in which the worker agrees that any future legal dispute with the company goes to arbitration instead of court. These agreements are generally enforceable. Federal law, through the Federal Arbitration Act, strongly favors them, and California courts will usually enforce a properly drafted agreement. Employers tend to like arbitration because it is private, faster than court, and avoids juries. Many workers, and plenty of judges, have raised concerns that a system where the employer writes the contract, picks the process, and pays the arbitrator can tilt the field.
So the starting point is this: if you signed an arbitration agreement, it probably applies to you. But California law now draws some clear lines around what these agreements can and cannot do.
Can They Make You Sign in the First Place? Yes.
California tried to stop that and lost. Labor Code § 432.6, added by AB 51 in 2019, made it unlawful for an employer to require an applicant or employee to agree to arbitrate specified claims as a condition of employment, and attached civil and criminal penalties. In Chamber of Commerce of the USA v. Bonta (9th Cir. 2023) 62 F.4th 473, the Ninth Circuit held the Federal Arbitration Act preempts that scheme: a state rule that discourages the formation of an arbitration agreement violates the FAA's equal-treatment principle, even if it leaves executed agreements alone.
The practical answer for 2026 is therefore uncomfortable but clear. A California employer may lawfully make signing an arbitration agreement a condition of getting or keeping the job. Refusing to sign is not protected activity under § 432.6, because the part of § 432.6 that would have protected you cannot be enforced. Anyone telling you California banned mandatory arbitration is describing a statute that exists on the page and not in operation.
That is why the rules below matter. The fight in California is no longer about whether you can be required to sign. It is about what the agreement you signed is allowed to contain, and what happens when the company that wrote it does not follow its own process.
The Floor Every Employment Arbitration Agreement Has to Clear
Before the recent cases, there is an older framework that still does most of the work, and it is the thing most summaries of this subject leave out. In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, the California Supreme Court held that when a mandatory employment arbitration agreement covers unwaivable statutory rights, such as claims under the Fair Employment and Housing Act, the agreement must satisfy five minimum requirements. It must:
- Provide for a neutral arbitrator
- Provide for more than minimal discovery, at least access to the essential documents and witnesses as the arbitrator determines
- Require a written award, sufficient to permit limited judicial review
- Provide for all types of relief that would otherwise be available in court
- Not require the employee to pay unreasonable costs, or any arbitrator's fees or expenses, as a condition of access to the arbitration forum
The fifth is the one that decides the most cases and the one workers least expect. Arbitration has costs a courtroom does not: the arbitrator charges by the hour, and in a public court the judge does not send an invoice. Under Armendariz those forum costs are the employer's to carry, and an agreement that splits them with the employee, or makes payment a precondition to being heard, has a problem.
How a Court Decides Whether an Agreement Is Unconscionable
Armendariz also set the analytical structure. Unconscionability has two elements, and California courts weigh them together:
- Procedural unconscionability looks at oppression or surprise arising from unequal bargaining power. How the agreement was presented: take it or leave it, buried in a stack, no time to read, no copy given, no chance to negotiate.
- Substantive unconscionability looks at whether the terms themselves are overly harsh or one-sided. What the agreement actually says: who can sue for what, in what forum, with what discovery, at whose expense.
Both must be present, but not in equal measure. The court applies a sliding scale: the more substantively oppressive the term, the less procedural unfairness is needed to make it unenforceable, and the reverse is equally true. That is the single most useful thing to understand about this area, because it explains why two agreements signed in identical circumstances can come out differently. The signing circumstances are only half the question.
One honest caution about Armendariz. It is 26 years old and binding, and parts of it have been narrowed by later federal preemption decisions on class waivers and related questions. The five minimum requirements and the unconscionability framework remain good California law and are applied routinely. But it is a case whose edges have moved, and anyone relying on a specific holding from it for a real dispute should have a lawyer check the current state of that particular point rather than assume the 2000 opinion reads the same way today.
With that floor in place, three more recent lines matter most in 2026.
Rule 1: Sexual Harassment and Sexual Assault Cases Can Stay in Court
In 2022, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, known as the EFAA. It is codified at 9 U.S.C. sections 401 and 402, and it does something simple and powerful: a person alleging sexual harassment or sexual assault can choose to reject a pre-dispute arbitration agreement and take those claims to court. The choice belongs to the person raising the claim, not the company.
California courts then answered the follow-up question that mattered most in real cases: what happens when a lawsuit includes a sexual harassment claim alongside other claims, like unpaid overtime or retaliation? In Liu v. Miniso Depot CA, Inc. (2024) 105 Cal.App.5th 791, the Second District Court of Appeal held that when at least one claim in the case falls under the EFAA, the entire case stays in court. The lawsuit does not get split, with one piece in court and the rest sent to an arbitrator. The California Supreme Court declined to review that decision, and in October 2025 the United States Supreme Court passed on the question too. As of 2026, that is the settled rule California courts apply.
Two practical notes. First, the EFAA applies to disputes that arose after March 2022, so very old claims may be treated differently. Second, the law removes the forced part of arbitration for these cases. A person who prefers arbitration can still choose it. If you want a plain-English refresher on what counts as sexual harassment in the first place, our guide to sexual harassment in California workplaces covers the basics.
Rule 2: If the Company Pays Arbitration Fees Late, It Can Lose Arbitration
Here is a pattern California lawmakers noticed years ago: a company forces a dispute into arbitration, then drags its feet on paying the arbitrator's fees, leaving the worker's case in limbo. The Legislature responded with Code of Civil Procedure sections 1281.97 and 1281.98, which generally require the party that wrote the arbitration agreement, almost always the employer, to pay its share of arbitration fees within 30 days of the invoice being due. Miss that window, and the company can be found in material breach, which may let the worker pull the case out of arbitration and back into court.
For a few years, courts read that 30-day rule with almost no forgiveness. One day late, even by accident, could mean the company lost arbitration entirely. In Hohenshelt v. Superior Court (2025) 18 Cal.5th 310, decided August 11, 2025, the California Supreme Court settled the matter. The Court upheld the statute against a federal preemption challenge, so the 30-day deadline is alive and well. But it softened the edges: a company that misses the deadline because of a good-faith mistake, inadvertence, or excusable neglect may be able to get relief, while a company whose nonpayment is willful, grossly negligent, or fraudulent can still forfeit its right to arbitrate.
What does that mean day to day? For workers already in arbitration, fee deadlines still matter and are worth tracking. If the company simply stops paying, that can be the door back to court. For employers, the message is even simpler: calendar the invoices and pay them on time. An arbitration agreement you paid lawyers to draft can be lost over an unpaid bill.
Rule 3: Unreadable Fine Print Gets a Hard Look
The third development is about how these agreements look. In Fuentes v. Empire Nissan, Inc. (Cal. Feb. 2, 2026, No. S280256), the California Supreme Court took up an arbitration agreement printed in tiny, blurry, nearly unreadable type. The employee had been given about five minutes to sign a stack of onboarding papers and never received a copy.
The Court's answer had two parts. Unreadable formatting alone does not automatically make an agreement unfair, because courts judge fairness mainly by what the terms say, not what font they are printed in. But, and this is the part that matters, when an agreement is presented in a way the signer could not realistically read or understand, courts must scrutinize its terms closely for one-sidedness, and any ambiguity gets read against the employer who drafted it. There is no thumb on the scale in favor of arbitration in that review.
Read against Armendariz, Fuentes is the sliding scale in operation. Illegibility is powerful evidence of procedural unconscionability, the surprise-and-oppression half. What it cannot do is supply the substantive half on its own, because a term is not harsh merely because it was hard to read. What high procedural unfairness does is lower the bar on the other side: the terms then get close scrutiny for one-sidedness rather than the benefit of the doubt.
What actually happened to Ms. Fuentes is worth stating, because it is easy to over-read the win. The Supreme Court reversed the Court of Appeal and sent the case back to the trial court. It did not hold the agreement unenforceable. It held that the lower court had used the wrong framework and had to look again. A favourable rule on appeal is not the same as a result, and the case continues.
In other words, fine print is not a free pass. A company cannot bury harsh terms in an illegible document and count on courts to wave it through. For employers, the lesson from Fuentes is that readable, honest paperwork is now a legal asset, not just a courtesy. For workers, the takeaway is practical: ask for a copy of everything you sign, and take the time to read it. Our guide to arbitration agreements in California explains the common terms and what they mean.
PAGA Claims: Your Own Claim Can Be Compelled, the Representative Claim Survives
One more limit is worth knowing, because it is the largest single carve-out in California and it is frequently described wrongly. A Private Attorneys General Act claim under Labor Code § 2698 et seq. has two halves: the penalties for violations against you, and the penalties for violations against other employees, which you pursue on the state's behalf.
An arbitration agreement covered by the FAA can compel the individual half into arbitration. What it cannot do is end the rest of the case. In Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, the California Supreme Court held that an order compelling arbitration of the individual claims does not strip the plaintiff of standing to litigate the non-individual claims in court as an aggrieved employee.
So the practical shape of a PAGA case with an arbitration agreement is a split one: your own claim goes to the arbitrator, and the representative claim stays in court, usually stayed while the arbitration runs. An employer told that an arbitration clause disposes of a PAGA action has been told something that stopped being true in 2023. Our PAGA guide covers the notice requirements and the penalty structure, both of which changed again in the 2024 reform.
What This Means for You
If you are a worker, a few things generally follow from all this:
- Signing did not end the story. An arbitration agreement is usually enforceable, but it has limits. Sexual harassment and sexual assault claims may proceed in court if you choose, entire cases can return to court when the employer does not pay its arbitration fees on time, unreadable or one-sided agreements can be challenged, and a PAGA representative claim stays in court even when your own claim is arbitrated.
- Read the agreement against the five requirements. A neutral arbitrator, real discovery, a written award, every remedy a court could give, and no arbitration costs charged to you. An agreement that makes you split the arbitrator's fee, or caps your damages below what the statute allows, or gives the company a shorter deadline than it gives you, is the kind of one-sidedness Armendariz is about. That is worth raising before you need it.
- Keep your paperwork. Your signed agreement, your offer letter, and any handbook acknowledgments matter. So does a record of what actually happened at work. Our article on documenting workplace issues walks through how to build that record calmly and thoroughly.
- Deadlines still apply. Whether a dispute heads to court or arbitration, the time limits for bringing claims do not pause while you decide what to do. Anyone weighing a serious claim may want to speak with a licensed California attorney sooner rather than later.
If you are an employer, the practical checklist for 2026 is short and worth doing this quarter: audit the agreement against the five Armendariz requirements, since a cost-splitting or remedy-limiting clause is the most common defect, then make sure it is readable and balanced, train whoever handles onboarding to give people real time to review documents and a copy to keep, calendar every arbitration invoice against the 30-day rule, and treat any case involving sexual harassment allegations as one that is likely staying in court. Companies that relied on arbitration as a shield are finding that the shield has defined edges now.
The Bigger Picture: Most Workplace Disputes Do Not Need a Courtroom or an Arbitrator
Step back from the case names and a theme emerges. Courts and lawmakers keep pushing on the same question: when a workplace conflict turns into a legal fight, is the process fair to both sides? That question has consumed years of litigation, and the three rules above are the current answer for arbitration.
But there is a quieter truth underneath it. By the time anyone is arguing about arbitration fees or font sizes, the relationship has usually already broken down, and both sides are spending money on process instead of resolution. Most workplace problems do not start as legal claims. They start as concerns that nobody addressed early, honestly, and in a structured way.
That early window is where Wiser Workplace operates. Our platform gives an employee a confidential way to raise a concern, gives the employer a fair way to hear and respond to it, and brings in a neutral mediator when the two sides need help finding a resolution. Mediation is voluntary for the substance, confidential by design, and far less expensive than either a courtroom or an arbitration. It is not about anyone giving up rights. It is about solving the problem before the only people benefiting are the ones billing by the hour. If that approach makes sense to you, you can read about how mediation works in California, see the benefits of staying out of court, or join the launch waitlist.
Arbitration agreements will keep evolving, and the courts will keep drawing lines. But whichever forum a dispute lands in, the earliest and cheapest resolution is almost always the one that happens before anyone files.
Sources. Statutes and rules: Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, 9 U.S.C. §§ 401 to 402; Code of Civil Procedure §§ 1281.97 and 1281.98; Labor Code § 432.6; Labor Code § 2698 et seq. Cases: Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83; Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104; Chamber of Commerce of the USA v. Bonta (9th Cir. 2023) 62 F.4th 473; Liu v. Miniso Depot CA, Inc. (2024) 105 Cal.App.5th 791; Hohenshelt v. Superior Court (2025) 18 Cal.5th 310, No. S284498; Fuentes v. Empire Nissan, Inc. (Cal. Feb. 2, 2026, No. S280256), reversing 90 Cal.App.5th 919. Every case above was checked against at least three independent databases before publication. Fuentes is cited by court, date, and docket rather than by volume and page: it is recent enough that we could not confirm an official California Reports citation in two independent sources, and we do not print a citation we cannot confirm.