Written by Ransom Boynton, Senior Associate
I know what you’re probably thinking: “Is this guy writing yet another article about arbitration agreements?” Yes, I am. Like a cover band that only plays the hits, arbitration agreements keep coming back around in my world of employment litigation — especially after several important developments this year. Here’s what California employers need to know.
Why Arbitration Agreements Still Matter
For years, a well-drafted arbitration agreement was one of the most reliable tools available to California employers. If an employee filed a wage-and-hour class action, the employer could move that employee’s individual claims into arbitration and enforce the agreement’s class-action waiver — the clause that keeps an employee from teaming up with coworkers to sue as a group. That didn’t guarantee a win, but it could substantially shrink a case and the pressure to settle it.
That protection is still valuable, but it now has real limits. Under a 2023 case called Adolph v. Uber Technologies, Inc., sending an employee’s individual PAGA claim to arbitration does not eliminate that employee’s right to also pursue non-individual PAGA claims in court. (PAGA is the California law that lets an employee sue on behalf of the state for labor code violations.) So while the class claims may disappear, a PAGA case can still remain at the courthouse. That has made arbitration agreements less of a complete safe harbor — and plaintiffs’ attorneys are attacking the agreements themselves more often as a result.
A Cautionary Tale: Cook v. USC
One case getting a lot of attention is Cook v. University of Southern California (2024). USC’s arbitration agreement required the employee to arbitrate any claim she might ever bring against USC and a long list of related entities — even claims that had nothing to do with her job. The agreement also never expired, and it could not be changed or canceled without a signed writing from both the employee and USC’s president.
The Court of Appeal ruled the agreement was unconscionable (meaning so one-sided that a court won’t enforce it) because it covered too much, lasted too long, and lacked “mutuality” — the employee had to arbitrate claims against USC’s related companies, but those companies never agreed to arbitrate claims against her. Because these problems ran through the entire agreement, the court refused to sever (cut out) the bad provisions, and instead threw out arbitration altogether.
The Sequel: Phan v. Knight Sacramento
Employers hoping Cook was a one-time problem got more bad news in Phan v. Knight Sacramento SU Inc., decided in June 2026. The employee worked on and off for two car dealerships and signed agreements requiring arbitration of claims arising from her employment — or from “any other interaction/relationship we had, have or may have in the future.”
The agreements also covered a long list of third parties: owners, officers, managers, employees, agents, attorneys, and affiliated companies, among others. When the employee filed a wage-and-hour class action, the dealerships tried to compel arbitration. The court followed Cook and refused, for similar reasons: the agreement reached far beyond employment-related disputes, and it was not mutual as to the third parties involved.
The employer argued the agreement was only meant to cover employment claims, despite its broad wording. The court was not persuaded: an agreement is judged by what it says when it is signed, not by a narrower explanation offered after a lawsuit begins. Notably, the court also declined to enforce the agreement’s severability clause, finding the problem provisions too central to simply edit out. That is a fairly rare outcome, and California employers should take note.
The Encore: Cocom v. ABM Aviation (the Good News)
There is better news, too. In Cocom v. ABM Aviation, Inc., decided in June 2026, the Ninth Circuit reversed a lower court’s refusal to enforce arbitration. Unlike USC’s agreement, ABM’s was limited to employment-related disputes — which also solved the duration problem, since employment-related claims do not keep accruing forever after someone’s job ends.
The court found the agreement was sufficiently mutual, and held that even if certain provisions (such as the PAGA and public-injunctive-relief waivers) were unenforceable, they could be cut out without destroying the rest of the agreement. Cocom confirms that arbitration agreements still work — they just need to be drafted more carefully than some employers have managed in the past.
What This Means for You
The takeaway is not that California employers should abandon arbitration agreements. A valid agreement can still eliminate class claims and require an employee’s individual claims — including an individual PAGA claim — to proceed in arbitration. But now is a good time to review your agreement and confirm that it:
• Is limited to employment-related disputes
• Does not last forever
• Does not grant one-sided rights to a long list of third parties
Plaintiffs’ attorneys are citing Cook regularly, and Phan now gives them additional appellate support. Arbitration agreements remain an important line of defense — but careless drafting can leave an employer singing the blues.
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The information contained herein may not reflect the most current legal developments and is not guaranteed to be correct, complete, or up to date. Nothing in this article should be construed as creating an attorney-client relationship. Employers should consult with qualified employment counsel regarding their specific circumstances before taking action based on any information contained in this article.
About Koegle Law Group, APC
Koegle Law Group, APC is a boutique employment law and business litigation firm representing employers and businesses around the coutry. The firm advises clients on a wide range of employment matters including wage and hour compliance, PAGA defense, harassment and discrimination, leave management, and HR counseling. For a confidential consultation, contact the firm at the offices below.
Koegle Law Group, APC – https://koeglelaw.com
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