Phan v. Knight Sacramento SU Inc. left an employer unable to compel arbitration after a California appeals court upheld a trial judge’s ruling that the agreement was unenforceable in full.
2 provisions drove the substantive unconscionability finding: one swept in disputes beyond the employment relationship, and another let third-party beneficiaries enforce arbitration without equally binding them to arbitrate claims against the employee.
A take-it-or-leave-it presentation as a condition of employment also supported procedural unconscionability, reinforcing the court’s refusal to sever the offending terms despite a severability clause.
The ruling, relying in part on the 2024 Cook decision, signals that California courts will keep closely scrutinizing employer arbitration agreements, especially broad clauses and asymmetric third-party enforcement rights.