California courts are applying increasingly rigorous standards when evaluating arbitration agreements within an employment context, particularly where onboarding practices raise fairness concerns. Velarde v. Monroe Operations, LLC is a prime example of this expanding judicial approach. The case highlights how even facially neutral arbitration agreements can become unenforceable when employers rely on rushed or misleading onboarding processes. For employers, the takeaway from Velarde is clear: courts are paying close attention not just to the wording of arbitration agreements but to how they are presented to employees. Poor onboarding practices can put these agreements at risk and may limit an employer’s ability to use arbitration later.
In Velarde, the California Court of Appeal affirmed the denial of a motion to compel arbitration after finding the employer’s arbitration agreement both procedurally and substantively unconscionable. The plaintiff, Karla Velarde, was presented with 31 onboarding documents on her first day of work, including an arbitration agreement. She expressed discomfort and said she did not understand the agreement, but the HR representative allegedly reassured her that arbitration would simply allow disputes to be resolved “without either side having to pay lawyers.” In reality, the agreement required each party to bear their own costs and did not resemble the simple, informal process she was led to believe.
The court held that the circumstances surrounding the presentation of the agreement created a high level of procedural unconscionability. Velarde was pressured to sign quickly, without meaningful time for review or consultation, and the HR representative gave misleading explanations about the agreement’s effects. The Court also found the agreement to be unreasonably favorable to the employer because the actual terms did not match those representations and imposed a cost of litigation burden on employees while offering no real benefits. Since the unfairness was woven into the entire agreement, the court chose not to sever specific clauses and voided the agreement altogether.
This case underscores California courts’ ongoing scrutiny of the context in which arbitration agreements are presented. Even agreements that appear neutral on the surface can still be invalid if the onboarding process is rushed, confusing, or misleading. Velarde reinforces that employers must ensure transparency and voluntary consent if they want arbitration agreements to survive judicial review.
Practice Tips for Employers:
- Avoid high-pressure onboarding: Do not require employees to sign arbitration agreements on their first day or within minutes of receiving them. Provide reasonable review time.
- Give clear, accurate explanations: Train HR personnel not to “sell” arbitration or downplay legal implications. Misrepresentations, even informal ones, can void the agreement.
- Ensure the agreement matches what is represented: If HR describes arbitration
as inexpensive or simple, the agreement must reflect that. Better left to the employee to read and seek counsel. - Separate the arbitration packet: Provide the agreement as a stand-alone document with a signature page and acknowledgment that the employee had time to review it.
- Allow employees to ask questions: Giving employees the opportunity to seek legal advice or clarification supports enforceability.
JoLynn Scharrer is a shareholder at Hunt Ortmann Palffy Nieves Darling & Mah, Inc. and leads the Firm’s Labor & Employment and Insurance Practice. She can be reached at scharrer@huntortmann.com for further information and assistance.
