Written by Zachary Cavanagh, Of Counsel | Koegle Law Group
Arbitration agreements are one of the most effective tools California employers can use to control litigation risk — because even the best-run companies can still face costly employee lawsuits. Compared to state court, arbitration is faster, more cost-effective, and private. Instead of years of motions and jury uncertainty, arbitration provides a streamlined process where disputes are resolved more efficiently.
But here’s the catch: arbitration agreements must be drafted with careful intention. Poorly worded provisions may weaken your agreement or invite employee challenges that delay or derail arbitration. The California Supreme Court has made clear that enforceability turns on whether terms are overly one-sided (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83).
One area that courts pay especially close attention to is injunctive and equitable relief carve-outs.
A Cautionary Hypothetical
Imagine a trusted employee leaves with confidential client data and immediately starts contacting your accounts. You need emergency relief to stop the disclosure.
If your arbitration agreement lacks a carve-out for injunctive relief, you may not be able to go to court for an injunction. Instead, you could be forced into arbitration, which may not provide immediate relief. By the time the arbitrator hears the case, your trade secrets may already be exposed.
This is why California employers should always include some form of injunctive/equitable relief carve-out. The real question is: should it cover only preliminary relief, or both preliminary and permanent relief?
Carving Out Preliminary vs. Permanent Relief
When deciding how to structure injunctive relief carve-outs in arbitration agreements, California employers typically choose between two approaches: a conservative option that allows court access for preliminary relief only, or a more aggressive option that also permits court action for permanent relief.
The conservative approach carves out only preliminary injunctive relief. This allows you to go to court in emergencies—such as to stop a former employee from disclosing trade secrets—while requiring any permanent remedies for those same claims to be decided in arbitration. Courts generally view this model as more balanced, reducing the risk that the agreement will be found unconscionable and invalid.
The aggressive approach allows both preliminary and permanent equitable relief to be pursued in court. This gives employers broader tools and avoids arbitrating issues like trade secret violations altogether. However, it can appear one-sided: employees must arbitrate their most likely claims, while the employer retains full court access for its most likely claims. Courts have upheld this model when supported by legitimate business interests—but it carries a higher risk of the arbitration agreement being struck down.
Bottom line: a preliminary-only carve-out is the safer bet in terms of enforceability. But for employers willing to accept greater legal risk in exchange for broader court access, a permanent relief carve-out may still be viable—if carefully drafted and justified.
How Courts View Carve-Outs
When analyzing whether an employer’s arbitration agreement is enforceable or not, California courts apply a “sliding scale” of unconscionability: looking at whether the agreement was mandatory and whether terms are unfairly one-sided (Ramirez v. Charter Commc’ns, Inc. (2024) 16 Cal.5th 478; Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237).
Key points for employers:
- Adhesion isn’t fatal. Arbitration agreements remain enforceable even if signed as a condition of employment (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74).
- Carve-outs can be valid. Courts uphold them if they protect legitimate business interests without stripping employees of rights.
- Severability saves agreements. Courts often strike only the offending clause, not the whole agreement (Armendariz, supra; Ramirez, supra).
Takeaway: permanent carve-outs aren’t automatically invalid, but they invite closer scrutiny. Employers should choose based on business goals and risk tolerance.
Drafting With Intention: Key Takeaways
✅ Always include a carve-out for preliminary injunctive relief.
⚖️ Decide whether to also carve out permanent relief, weighing the value of court access against enforceability risk.
📝 Add a severability clause so one disputed term doesn’t sink the entire agreement.
Why This Matters in Court
When an employee resists arbitration, the court will closely examine your agreement. If your carve-outs look unbalanced, you risk challenges and delay. With careful drafting, you preserve enforceability and protect your business.
How Koegle Law Group Helps Employers
At Koegle Law Group, we help California employers draft arbitration agreements that stand up in court. We advise on whether preliminary-only or broader carve-outs fit your goals, and we craft provisions that protect your business without exposing you to avoidable challenges.
Don’t wait until your company’s confidential information is already at risk. Contact Koegle Law Group today for a free and confidential consultation.
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