In the recent case of Gurganus v. IGS Solutions, LLC, (Gurganus) California once again reminds employers that to be enforceable; arbitration agreements must be both procedurally and substantively fair. The central issue in Gurganus was whether the arbitration agreement between Gurganus and her employer was enforceable. Specifically, the court examined if the agreement was unconscionable—both procedurally (how it was presented and signed) and substantively (the fairness of its terms)—and whether any problematic provisions could be severed to salvage the agreement. 

The Facts 

About five months into her employment, Gurganus was asked to electronically sign several new documents, including an arbitration agreement, a voluntary dispute resolution policy, and a confidentiality/non-disclosure agreement (CND).  The terms of the arbitration agreement required most employment-related disputes to be resolved by arbitration, excluding certain claims (like those seeking injunctive relief for confidential information) from arbitration. It also included a confidentiality provision restricting disclosure of arbitration-related information. The CND allowed the employer to enforce its terms in court and permitted the company to seek injunctive relief without posting a bond or proving actual damages. 

After her employment ended, Gurganus sued her employer for various employment law violations. The employer moved to compel arbitration, arguing that the agreement was enforceable, and any unconscionable provisions could be severed. The trial court found the arbitration agreement, and CND were presented as a package, and together, they lacked mutuality—forcing employee claims into arbitration while allowing the employer claims to go to court. The confidentiality provision further disadvantaged employees by restricting informal discovery. 

The Court’s Decision 

Ultimately, the California Court of Appeal affirmed the trial court’s decision finding: 

• Unconscionability: The arbitration agreement was both procedurally and substantively unconscionable. It was a contract of adhesion, presented to an existing employee as a condition of continued employment, and contained terms that unfairly favored the employer. 

• No Severance: Because multiple provisions of the agreement were unconscionable, the court declined to sever them, finding the agreement “permeated by unconscionability.” 

What Does It Mean? 

The Gurganus case highlights the risks of arbitration agreements that are presented to employees without meaningful negotiation and that contain terms favoring the employer, such as excluding employer claims from arbitration or imposing broad confidentiality restrictions. Courts will closely scrutinize such agreements, especially when they are presented as a package with other employment documents and lack mutuality. 

To help lower the risks associated with arbitration agreements, employers should consider the following:  

• Ensure Mutuality: Arbitration agreements should apply equally to both employer and employee claims. For example, avoid carve-outs or exceptions that allow only the employer to go to court for certain disputes. 

• Avoid Overly Broad Confidentiality Provisions: Confidentiality clauses should not restrict an employees’ ability to gather evidence or contact witnesses outside a formal discovery process. 

• Review Severability Clauses: While the ability to sever certain contractual provisions if they are found to be unlawful or unconscionable can help, the inclusion of multiple unconscionable or unlawful provisions may ultimately render the entire agreement unenforceable.