In Fuentes v. Empire Nissan (Feb. 2, 2026), the California Supreme Court addressed whether an arbitration agreement presented in extremely small font and under time pressure was enforceable.
Evangelina Yanez Fuentes signed an “Applicant Statement and Agreement” when applying for employment with Nissan. The one-page document required that “any claim” between the employer and employee “shall be submitted to and determined exclusively by binding arbitration,” and provided that the agreement could only be modified if “signed by the President of the Company.” The arbitration paragraph contained approximately 900 words compressed into a few inches of text in very small, blurry font. Fuentes was given only five minutes to review the document and was told to hurry because the drug testing facility that she needed to visit to undergo a required pre-employment drug test was about to close. Later during her employment, she signed two confidentiality agreements allowing Nissan to seek injunctive relief and “any other remedies,” and only Fuentes signed those agreements.
After Nissan terminated Fuentes following an extended medical leave, she sued for discrimination and wrongful termination. Nissan moved to compel arbitration. Fuentes argued the agreement was unconscionable. Under California law, an arbitration agreement is unenforceable for unconscionability if it is both procedurally and substantively unconscionable. Procedural unconscionability focuses on unfairness in the formation process (such as fine print, legal jargon, or time pressure), while substantive unconscionability examines whether the actual terms are overly one-sided. The two operate on a sliding scale: the greater the procedural unfairness, the less substantive unfairness is required.
The trial court denied the motion to compel arbitration, finding a high degree of procedural unconscionability based on the tiny font, dense legal language, and rushed review. The court also found a low to moderate degree of substantive unconscionability, reasoning that the confidentiality agreements appeared to create a carveout allowing Nissan to pursue certain claims in court while requiring Fuentes to arbitrate all of hers. This carveout therefore meant that the arbitration agreement did not apply equally, or mutually, to Nissan and Fuentes.
The Court of Appeal reversed, concluding that illegibility alone does not make an agreement substantively unconscionable and determining that the confidentiality agreements did not alter the arbitration provision. It relied in part on the principle that the law favors arbitration.
The California Supreme Court reversed the Court of Appeal. The Court agreed that the arbitration agreement reflected a high degree of procedural unconscionability, emphasizing the near-illegible formatting, legal complexity, economic pressure at hiring, and minimal time for review. However, the Court clarified that font size and readability affect procedural unconscionability only; they do not themselves make contractual terms substantively unconscionable.
Importantly, the Court rejected the idea that the “policy favoring arbitration” permits courts to resolve ambiguities in favor of enforcement. The policy means arbitration agreements are treated like other contracts, not that they receive preferential interpretation. Courts must apply ordinary contract principles when assessing mutuality and fairness.
Turning to the confidentiality agreements, the Supreme Court held that the Court of Appeal improperly resolved factual questions, such as whether the company president signed the agreements, without an adequate record. Because the confidentiality agreements could reasonably be interpreted as allowing Nissan to litigate certain claims in court while limiting the employee to arbitration, the matter required further analysis. The Court remanded the case for a closer examination of whether the agreement lacked mutuality and whether the formation circumstances affected mutual assent.
The Supreme Court did not hold that the arbitration agreement was substantively unconscionable. Instead, it directed the lower court to scrutinize the agreement more carefully in light of the significant procedural concerns and unresolved factual issues.
Fuentes v. Empire Nissan, Inc. (Feb. 2, 2026, No. S280256) ___Cal.5th___ [2026 Cal. LEXIS 481].
Note: Based on the California Supreme Court’s decision, employers should consider two things. First, employers should make sure that their arbitration agreements and other contracts are legible, in a large enough font, understandable, and that the employee has sufficient time to review. Second, employers should be careful when having an employee sign multiple agreements throughout their employment. Any ancillary agreements and their terms should be carefully reviewed for potential conflicts with an arbitration agreement.