Labor & Employment Law Daily Wrap Up, EXPERT INSIGHTS—California high court limits use of formatting and ‘fine print‘ arguments to defeat arbitration, (Feb 13, 2026)

By Laura E. Devane, Robert Friedman and Carolyn Hudson of Littler Mendelson

The California Supreme Court (the "Court") has confirmed that an arbitration agreement's formatting—standing alone—does not render its terms substantively unconscionable, even where the text is difficult to read.[1] The Court rejected efforts to "double count" formatting flaws as both procedural and substantive defects. The Court also reiterated that extreme procedural deficiencies may warrant closer review of an agreement's terms, and remanded the case in question for further proceedings based on issues unique to the record before it.

Background

In Fuentes v. Empire Nissan, Inc., an applicant, during the hiring process, signed an arbitration agreement. The agreement appeared in dense, small-font text and was presented as part of a standard employment packet. After the employee's later termination, she filed suit, and the employer moved to compel arbitration.

The trial court denied the motion, finding significant procedural unconscionability and some degree of substantive unconscionability. The Court of Appeal reversed and directed arbitration. The Court granted review to resolve disagreement in the lower courts over how flawed formatting impacts an unconscionability analysis.

The California Supreme Court's Decision

1. Formatting Defects Are Procedural—Not Substantive

The Court squarely held that font size, density, or legibility do not, by themselves, make arbitration terms substantively unconscionable. Substantive unconscionability turns on whether contract terms are unfairly one-sided or unduly harsh, while procedural unconscionability considers the print or presentation of those terms. The Court also noted that a contract's multiple procedural deficiencies do not render the contract substantively deficient.

In reaching this conclusion, the Court clarified that references in prior cases to "fine-print terms" address hidden, unfair provisions, not merely small or blurry type. To that extent, the Court curtailed attempts to use formatting issues as an independent basis to invalidate arbitration agreements.

Takeaway: Arguments that arbitration agreements fail because of "tiny print" alone remain insufficient to establish substantive unconscionability.

2. Procedural Issues May Heighten—But Do Not Replace—Substantive Inquiry

While rejecting the trial court's reliance on illegibility as substantive unconscionability, the Court emphasized established doctrine: where procedural unconscionability is high, courts may apply closer scrutiny to the agreement's substance.

The Court acknowledged the Court of Appeal prematurely ended its analysis upon finding no substantive unconscionability, without meaningfully considering procedural unconscionability or applying the required sliding-scale framework. The Court further emphasized that arbitration agreements must be evaluated under the same principles as any other contract, neither favored nor disfavored.

3. Related Agreements Must Be Read Carefully

The employee pointed to separate confidentiality agreements executed after the arbitration agreement, arguing they preserved the employer's ability to pursue certain claims in court.

Without resolving that issue definitively, the Court concluded the agreements—read together—raised interpretive questions that should not have been resolved automatically in favor of arbitration. Given the posture of the case, the Court determined the trial court should reconsider whether the agreements, as drafted, created an impermissible lack of mutuality.

4. Remand for Further Proceedings

Because the trial court never reached the employee's separate argument that she did not assent to the arbitration agreement, the Court held the Court of Appeal erred in directing arbitration outright. The Court remanded the case to allow the trial court to address unresolved issues under the proper legal framework.

Key Takeaways for Employers

While fact-specific, the decision delivers several employer-relevant clarifications for arbitration agreements in general:

• Formatting alone does not invalidate arbitration agreements on substantive unconscionability grounds.

• California courts remain focused on the fairness of the terms themselves, not typography.

• Procedural concerns may increase scrutiny but do not substitute for a showing of unfair substance.

• Arbitration agreements should be reviewed alongside related employment documents to ensure consistent dispute-resolution provisions.

• Employers should not assume courts will rely on generalized "policy favoring arbitration" to resolve ambiguities.

Bottom Line

The California Supreme Court meaningfully limited the use of formatting-based challenges to arbitration agreements, reinforcing that substantive unconscionability requires substantively unfair terms. Although the Court remanded for further proceedings tied to the specific record, its core holding strengthens employers' ability to defend arbitration agreements against expansive unconscionability theories—particularly those grounded in formatting or "fine print" arguments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Laura E. Devane, Robert Friedman and Carolyn Hudson

Littler Mendelson

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E-mail: JKlein@littler.com

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Footnotes

1

A contract is substantively unconscionable when its terms unfairly benefit or harm one side and a contract is procedurally unconscionable when there was unfairness in the process of forming the contract, often due to an imbalance in bargaining power.

Attorneys: (Littler Mendelson).

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