Can an employer enforce an arbitration agreement when HR told the employee it meant she wouldn't need lawyers — and the agreement said the opposite?

No. In a published opinion, the California Court of Appeal affirmed an order denying a nationwide healthcare company's motion to compel arbitration, holding the agreement was both procedurally and substantively unconscionable.

Our client had been laid off during the pandemic and was unemployed for nine months before being hired as a care coordinator by Monroe Operations, LLC — the company that does business as Newport Healthcare and operates the Newport Academy residential mental-health treatment programs for adolescents and young adults. On her first day, she was handed a stack of 31 documents and told she had to finish them before she could start work, while an HR manager waited. One was a five-page arbitration agreement referencing the Federal Arbitration Act, the Federal Rules of Civil Procedure, the Federal Rules of Evidence, and the AAA employment rules. She said she didn't understand it and didn't feel comfortable signing. The HR manager told her it would "help us resolve any issues without having to pay lawyers." She signed. She was later terminated and sued for disability discrimination, retaliation, and whistleblower violations.

The Court of Appeal found the procedural unconscionability here exceeded that in OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111 — the leading California case on coercive arbitration agreements — because of one fact OTO did not involve: the employer affirmatively misstated what the agreement did. The court noted the misstatement need not be intentional; it focused on the effect, not the intent.

On substantive unconscionability, the court held the agreement did not match the expectation the employer had created. Our client was told arbitration meant resolving disputes cheaply and without lawyers. What she actually signed was an adversarial process with discovery under the Federal Rules of Civil Procedure — rules a lay person is unlikely to navigate, while a nationwide corporation would have counsel available. The court concluded the terms were "so one-sided as to benefit only" the employer.

Why this matters: California employers routinely defend arbitration agreements by arguing the terms themselves are neutral. Velarde holds that neutral terms can still be unconscionable when the employee was told something different at signing — and that an employer's explanation of an agreement is part of the unconscionability analysis, whether or not the explanation was deliberate.

Andrew S. Pletcher of Pletcher Law, APC handled the appeal for the employee, with Reisner and King. Mr. Pletcher wrote the respondent's brief and argued the case before the Court of Appeal.

Velarde v. Monroe Operations, LLC, doing business as Newport Healthcare (2025) 111 Cal.App.5th 1009 — G063626, Fourth Appellate District, Division Three, on appeal from Orange County Superior Court; certified for publication.

Prior results do not guarantee a similar outcome.

Were you handed an arbitration agreement on your first day?
If your employer told you what it meant — or rushed you through a stack of onboarding documents — that conversation may matter more than the paperwork. Signing an arbitration agreement doesn't always end your case.
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VELARDE — FAQs

Can I still sue in court if I signed an arbitration agreement?

Sometimes. An arbitration agreement can be unenforceable if it is unconscionable — meaning both the circumstances of signing and the terms themselves were unfair. In Velarde v. Monroe Operations (2025), the Court of Appeal affirmed the denial of a motion to compel arbitration on exactly that basis.

What if HR explained the arbitration agreement to me and got it wrong?

That can matter a great deal. In Velarde, an HR manager told the employee arbitration would resolve disputes "without having to pay lawyers," when the agreement actually required an adversarial process with federal-rules discovery. The Court held it did not matter whether the misstatement was intentional — it focused on the effect, not the intent.

Is it unconscionable to be required to sign an arbitration agreement on my first day?

It can contribute. Velarde involved 31 onboarding documents presented at once, an HR manager waiting while the employee signed, and no meaningful opportunity to review the agreement or consult a lawyer. Those facts established procedural unconscionability.

What is the difference between procedural and substantive unconscionability?

Procedural unconscionability concerns how the agreement was made — pressure, surprise, unequal bargaining power. Substantive unconscionability concerns whether the terms themselves are unfairly one-sided. California requires both, though not in equal measure: strong evidence of one reduces how much of the other is needed.

Does signing an arbitration agreement mean I gave up my rights?

Not automatically. Arbitration changes the forum, not the underlying rights. And where the agreement itself is unenforceable, the case can proceed in court.

Coverage

• Justia
• CourtListener
• FindLaw
• Proskauer — California Employment Law Update, "Arbitration Agreement Was Unconscionable"
• Manatt, Phelps & Phillips — "California Court Finds Arbitration Agreement Procedurally, Substantively Unconscionable"
• Garcia Gurney — "When Arbitration Agreements Fail: Key Lessons from Velarde"
• Employees First Labor Law — "California Court Rejects Misleading Arbitration Agreement"