When arbitration agreements go too far: Lessons from Cook and Ramirez

Both federal and California law embody a strong policy favoring the enforcement of arbitration agreements. The Federal Arbitration Act reflects a congressional determination that arbitration provides a speedy, economical and efficient forum for dispute resolution. California courts have long echoed this preference, recognizing arbitration as a valuable alternative to the congestion and expense of traditional litigation. Yet as the recent decisions in Cook v. University of Southern California (2024) 102 Cal.App.5th 312 and Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478 demonstrate, an employer's attempt to maximize the reach of an arbitration agreement can backfire when the drafting overreaches fundamental fairness. Plaintiff's counsel should, of course, be aware of these concerns in crafting any opposition to a motion to compel arbitration.

The Cook decision

Pamela Cook, an employee of USC, filed suit alleging discrimination and harassment--claims squarely arising from her employment. USC moved to compel arbitration based on an agreement Cook signed as a condition of employment. The trial court denied the motion, and the Court of Appeal affirmed, finding the arbitration agreement "permeated" with unconscionability.

The agreement's fatal flaws were threefold. First, its scope was virtually unlimited, requiring Cook to arbitrate "all claims, whether or not arising out of employee's University employment." The court observed that this language could theoretically compel arbitration of claims wholly unrelated to employment--even a traffic accident between Cook and another USC employee. Second, the agreement's duration was infinite, surviving termination and continuing "unless and until" both parties agreed in writing to terminate it. Third, the agreement lacked mutuality: While Cook was required to arbitrate claims against USC and all its "related entities," those related entities were not bound to arbitrate their claims against Cook.

California Supreme Court endorsement in Ramirez

The California Supreme Court's decision in Ramirez v. Charter Communications, Inc. has now strengthened Cook's authority. In Ramirez, the Supreme Court cited Cook approvingly for the proposition that "mere minimal mutuality does not justify a clause that is, in practical effect, unjustifiably one-sided." This endorsement elevates Cook's mutuality analysis from a Court of Appeal holding to a principle sanctioned by California's highest court.

Ramirez involved Charter's arbitration agreement, which the Supreme Court found substantively unconscionable on multiple grounds: lack of mutuality in claims subject to versus excluded from arbitration (employee claims were funneled to arbitration while employer claims were exempted), unreasonably shortened limitations periods for Fair Employment and Housing Act (FEHA) claims and provisions allowing the employer to recover attorneys' fees for successfully compelling arbitration. On remand in early 2025, the Court of Appeal again refused to enforce the agreement, finding its "central purpose was tainted with illegality" and reflected "a systematic effort by Charter to impose arbitration in a manner that favored the employer."

The tension between policy and overreach

The irony of Cook and Ramirez is apparent. Both employers presumably drafted their expansive arbitration agreements to maximize protection, yet that very expansiveness rendered the agreements unenforceable. The policy favoring arbitration presupposes a fundamentally fair bargain. When an employer drafts an agreement so one-sided and overreaching that it shocks the judicial conscience, courts will not enforce it regardless of the general tilt toward arbitration.

Critically, in both cases, the courts refused to sever the unconscionable provisions. Ramirez clarified the severability analysis: No bright-line rule requires refusal to enforce merely because an agreement has multiple unconscionable terms. Courts must conduct a "qualitative" analysis under the totality of the circumstances. However, when unconscionable terms permeate the agreement or reflect a systematic effort to tilt the playing field, severance will not save the agreement. The employer's overreaching thus results in no arbitration at all rather than limited arbitration. The moral here is that courts may not rescue agreements through severance of unconscionable provisions.

Drafting arbitration agreements in light of recent case law

Recent decisions, including Cook and Ramirez, underscore the importance of careful drafting in arbitration agreements. Employers may wish to review their existing agreements with these decisions in mind. Although enforceability depends on the specific facts and applicable law, the following principles may help reduce risk while maintaining the practical advantages arbitration can offer:

1. Limit the scope to employment-related claims. An agreement requiring arbitration of "all disputes arising out of or relating to the employment relationship" captures virtually every claim an employer would want arbitrated while avoiding the unconscionability finding in Cook. There is no meaningful benefit to covering claims unrelated to employment, and the attempt to do so proved fatal.

2. Provide for genuine mutuality in covered claims. Ramirez makes clear that funneling employee claims into arbitration while exempting employer claims is substantively unconscionable. If certain claims are excluded from arbitration, those exclusions should apply equally to both parties. The safest approach is to require arbitration of all employment-related disputes, regardless of which party initiates them.

3. Include a reasonable temporal limitation. Rather than creating an agreement of infinite duration, employers should provide that the obligation to arbitrate survives termination for a defined period--perhaps one year beyond the applicable statute of limitations for employment claims, or some similar reasonable period.

4. Be wary of shortening statutory limitations periods. Ramirez found that unreasonably shortened filing deadlines for FEHA claims rendered the agreement unconscionable. Consider allowing employees the full statutory period to pursue their claims.

5. Provide for adequate discovery. Ramirez offers some comfort here: Discovery limitations are not unconscionable provided the arbitrator has authority to order additional discovery if needed. Include express language granting the arbitrator discretion to expand discovery for good cause shown. Parenthetically, such language is seen in most arbitration provider rules.

6. Do not seek attorneys' fees for compelling arbitration. The Ramirez court found provisions allowing the employer to recover fees for successfully compelling arbitration to be substantively unconscionable.

Cook and Ramirez together serve as a cautionary tale, now backed by California Supreme Court authority. The strong policy favoring arbitration does not require courts to enforce fundamentally unfair agreements. Employers who draft arbitration provisions with restraint and balance will find courts receptive to enforcement. Those who overreach may find themselves, like USC and Charter, litigating in court the very claims they sought to arbitrate.