Arbitration agreements have been a standard part of California employment practice for years, but recent changes at both the state and federal level have made a lot of existing agreements worth revisiting. If yours has not been reviewed since before 2024, or if you have been thinking about rolling them out to current employees, this is a good time to think it through.
The core value proposition has not changed: arbitration is faster and more private than court, and it significantly limits class action exposure. What has changed is the legal landscape around them, including how they interact with PAGA claims, a new federal exemption for certain workers, and a carve-out for sexual harassment and assault claims that is now firmly established.
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Who Should Have One
The short answer is most California employers, but the reasons differ depending on your workforce.
Non-exempt hourly employees are the highest priority. Wage and hour claims, missed meal and rest breaks, off-the-clock work, overtime disputes: these are the claims that fuel PAGA actions and class litigation in California, and non-exempt workers are the most likely source of them. An arbitration agreement with a class action waiver is one of the most effective tools for keeping those claims individual rather than representative.
Exempt salaried employees carry different risk. Overtime and break claims are generally off the table, but discrimination, harassment, and wrongful termination claims are not. Arbitration agreements matter here too, just for different reasons.
Industry also shapes the calculus. Hospitality, retail, healthcare, and food service employers face some of the highest PAGA and wage and hour exposure in the state simply because of workforce size and the nature of shift-based work. Professional services and tech employers tend to see more discrimination and harassment claims. In both cases, arbitration agreements are worth having. The main exception to keep in mind: if any of your workers are local delivery drivers or couriers who do not cross state lines, a recent U.S. Supreme Court decision may limit your ability to enforce an agreement with those employees specifically.
What Has Changed
The 2024 PAGA reform legislation (AB 2288) changed how arbitration agreements interact with PAGA claims in a meaningful way. Individual PAGA claims can now be sent to arbitration, which is a real improvement for employers. The representative portion, where one employee sues on behalf of others, still cannot be fully waived. This means a well-drafted agreement reduces your PAGA exposure without eliminating it entirely, and agreements written before the reform may not be structured to take advantage of what the new law allows.
And one that has been on the books since 2022 but still catches employers off guard: claims of sexual assault and sexual harassment cannot be compelled to arbitration under federal law, regardless of what your agreement says. Employees retain the right to choose court for those claims.
Timing and Implementation
For new hires, the cleanest approach is to include the arbitration agreement in your onboarding paperwork, presented before the first day of work. Consideration is not an issue there because the job offer itself provides it.
Current employees are more nuanced. Simply requiring existing staff to sign as a condition of continued employment has been challenged in California courts. The better approach is to pair the rollout with something of value: a raise, a bonus, additional PTO, or some other concrete benefit. You should also give employees reasonable time to review the agreement before signing. Both steps matter if the agreement is ever challenged.
For enforceability generally, California courts look hard at whether an agreement is mutual (meaning it binds the employer too), whether the employee is required to cover any costs (they should not be), and whether discovery and remedies are comparable to what would be available in court. One-sided agreements are the ones that get thrown out.
Our Advice
If your arbitration agreement predates the 2024 PAGA reform, or if you are implementing one for the first time and want to do it in a way that holds up, reach out. The difference between an agreement that works and one that gets voided in court usually comes down to specific language and how it was rolled out, and both are worth getting right before you need it.
