Arbitration & Severance in Q4: What California Employees Should Watch
Year-end is prime season for “sign this” moments. Before you accept a severance package or an arbitration clause, check the pressure points below.
1) Are mandatory arbitration agreements allowed?
In California, AB 51’s attempt to penalize mandatory employment arbitration was preempted by the FAA. Employers can require arbitration agreements as a condition of employment, but the agreement still has to be enforceable.
2) Unconscionability still voids bad agreements.
Courts can refuse to enforce arbitration terms that are procedurally and substantively unconscionable (think: one-sided carve-outs, shortened filing windows, fee shifting, discovery gagging). Armendariz and its progeny remain the framework; recent California decisions continue to strike unfair provisions.
3) Severance NDAs and gag clauses have limits.
Silenced No More Act (SB 331): You generally can’t use settlement/severance terms to bar an employee from disclosing unlawful workplace acts (discrimination, harassment, retaliation). Applies to agreements on/after Jan 1, 2022.
NLRB (McLaren Macomb): Overbroad confidentiality and non-disparagement clauses in severance agreements can violate employees’ NLRA rights, even offering such terms can be unlawful. Narrow, tailored clauses may pass; broad gagging is risky.
4) Whistleblower protections are strong.
California Labor Code § 1102.5 protects workers who report suspected legal violations to a supervisor, agency, or other appropriate authority. Remedies can include reinstatement and fees. Don’t sign away rights you don’t have to.
Quick checklist before you sign
Arbitration: Look for one-sided carve-outs, fee-shifting, shortened deadlines, severe discovery limits, or limits on statutory remedies.
Severance: Ensure confidentiality/non-disparagement terms are narrowly tailored and don’t bar you from discussing unlawful acts or your working conditions.
Releases: Confirm what claims/parties/time periods you’re releasing and what’s carved out (e.g., claims that can’t legally be waived).
Whistleblowing/Retaliation: Preserve your documentation; do not waive statutory rights you still need.
Get it reviewed: A short legal review can surface fixable issues before you lock in terms.
Have you been handed an arbitration or severance agreement? Upload it for a fast, confidential review by ARS Counsel’s plaintiff-side employment team. Contact us today to get started!