Seyfarth Synopsis: The California Supreme Court held that illegibility and tiny font are matters of procedural, not substantive, unconscionability. However, courts must closely scrutinize the terms of hard-to-read agreements for unfairness, and ambiguities in such adhesive contracts (such as arbitration agreements) should be resolved against the drafter. Fuentes v. Empire Nissan, Inc.
The Facts
When applying to work at Empire Nissan, Evangelina Fuentes signed an “Applicant Statement and Agreement” that contained a mandatory arbitration provision covering “all disputes which may arise out of the employment context.” The document was printed in very small, blurry, type and consisted of a dense, lengthy paragraph. Fuentes received only about five minutes to complete the application packet—she was told to hurry to meet a drug-testing deadline, was not offered a chance to ask questions, and did not receive a copy. Later, at the company’s request, Fuentes signed two substantially identical confidentiality agreements that prohibited unfair competition and disclosure of confidential information, and authorized obtaining remedies “at law or in equity.”
Following a medical leave, Empire Nissan terminated Fuentes’s employment. Fuentes then filed a lawsuit for wrongful discharge and other related claims. Empire Nissan moved to compel arbitration, which Fuentes opposed.
The Lower Court Decisions
The trial court denied Empire Nissan’s motion to compel arbitration, concluding that the arbitration agreement was permeated by “a very high degree of procedural unconscionability.” The court emphasized that the agreement was printed in extremely small and blurry text, was densely written in complex legal jargon, and was presented to Fuentes under rushed, pressured conditions. The court also found “a low to moderate degree of substantive unconscionability,” relying on the agreement’s “fine‑print terms” and the later confidentiality agreements, which created a one‑sided carveout for claims that only the employer would litigate. Based on this combination of procedural and substantive unconscionability, the trial court ruled the arbitration agreement was unenforceable.
The Court of Appeal reversed in a divided opinion. The majority held that the agreement’s near‑illegible formatting could support procedural unconscionability but could not be used to establish substantive unconscionability. The majority further concluded that the confidentiality agreements did not create any one‑sided carveout because, applying California’s policy of favoring arbitration, the majority interpreted the confidentiality agreements to require arbitration as well. Having found no substantive unconscionability, the Court of Appeal held that it did not need to analyze procedural unconscionability.
The California Supreme Court Decision
The California Supreme Court clarified that while the arbitration agreement presented an extraordinarily high degree of procedural unconscionability, illegibility itself does not make any term substantively unconscionable. Instead, the Court held that formatting affects only the procedural analysis, and the level of scrutiny courts must apply to the agreement’s terms. Because Fuentes was given only minutes to review a nearly unreadable 900‑word paragraph packed with complex legal language, under circumstances the Court described as “highly oppressive” and “surprising,” the California Supreme Court agreed with the trial court that substantial procedural unconscionability was present, and close examination of whether any of the terms were unfair was required.
The Court also held that the Court of Appeal applied the wrong legal framework when determining whether the arbitration agreement was substantively unconscionable. The Court of Appeal improperly invoked a policy “favoring arbitration” to interpret ambiguities in the employer’s favor, rather than treating the arbitration agreement like any other contract and resolving ambiguities against the drafter. The California Supreme Court emphasized that the confidentiality agreements, which referenced “legal action,” “remedies at law or in equity,” and did not mention arbitration, could create a one‑sided carveout for claims the employer, not the employee, would bring. Consequently, the California Supreme Court reversed the Court of Appeal and remanded the case so that the trial court could reassess substantive unconscionability using the correct standards.
What Fuentes Means for Employers
Employers should ensure arbitration agreements are legible, comprehensible, and provided with adequate time for review. Separate agreements, particularly confidentiality agreements and intellectual property agreements, that deal with legal claims most likely asserted by an employer, should be drafted carefully to avoid unintended carveouts or ambiguities affecting mutuality. Employers should be aware that formatting choices that increase procedural unconscionability will heighten judicial scrutiny of terms, and therefore might contribute to a finding of substantive unconscionability, even if they are not per se substantively unconscionable.
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