Court of Appeal clarifies substantive unconscionability analysis for arbitration agreements: Gurganus v. IGS Solutions LLC

In Gurganus v. IGS Solutions LLC (2025) 115 Cal.App.5th 327, the Court of Appeal (First Appellate District, Division Three) clarified the criteria for substantive unconscionability, holding that an arbitration agreement that carves out broad injunctive relief (distinguishing Baltazar) and, when read with a concurrently signed confidentiality agreement, prevents informal witness discovery, is substantively unconscionable.

Five months into her employment, Plaintiff electronically signed an arbitration agreement, a dispute resolution policy (DRP), and a confidentiality and non-disclosure agreement (CND). Following her termination, Plaintiff sued for disability discrimination, retaliation, and other claims. The trial court denied Defendant’s motion to compel arbitration, finding the agreement procedurally unconscionable (despite an opt-out provision) because it was a material change to employment without consideration. The court also found substantive unconscionability from a confidentiality provision preventing witness contact outside of discovery and because the agreements carved out many of Defendant’s potential claims from arbitration. Defendant appealed.

The Court of Appeal affirmed. It held the trial court properly read the arbitration agreement and CND together, as they were presented simultaneously and governed the same issue. The court noted Defendant did not “meaningfully challenge” the finding that the agreement was an adhesive contract and thus procedurally unconscionable. Following Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, it found a high degree of substantive unconscionability from a lack of mutuality, as Defendant failed to justify “expansive” carve-outs for employer-specific claims. Combined with the unconscionable confidentiality provision, the court (using the sliding scale approach) found the agreement unconscionable. Because multiple unconscionable provisions permeated the agreement, the Court of Appeal held, following Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, that the trial court did not abuse its discretion by declining to sever the offending portions.

Full opinion

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