Court Rules Arbitration Clause Too Narrow for Wrongful Termination Claims
California court finds arbitration clause too narrow to cover wrongful termination claims.
Why it matters: This ruling affects how employers draft arbitration clauses by clarifying they must explicitly include statutory claims to enforce arbitration. It signals that employee claims based on public policy protections may bypass arbitration and proceed in court.
- California Court of Appeal ruled arbitration clause did not cover disability discrimination and wrongful termination claims.
- The case, Morales v. Superior Court, was decided on September 22, 2026.
- The arbitration clause covered disputes ‘regarding any aspect’ of the employment agreement but excluded statutory claims.
- Court emphasized employee claims arise from statutory protections and public policy, not breach of agreement.
In Morales v. Superior Court, 122 Cal. App. 5th 239 (2026), the California Court of Appeal held that an arbitration clause narrowly framed to apply only to disputes "regarding any aspect" of the employment agreement did not encompass claims related to disability discrimination, failure to accommodate, failure to engage in the interactive process, retaliation under the California Family Rights Act, and common law wrongful termination.
The court instructed the trial court to vacate its order compelling arbitration because these claims were grounded in statutory protections and public policy rather than arising from any disputed interpretation or breach of the employment contract. The ruling underscores that statutory employee rights cannot be broadly subsumed under generic arbitration provisions linked solely to contract terms.
Importantly, a merger clause in the employment agreement gave later, more restrictive agreements precedence over earlier hiring documents, further limiting the arbitration scope. The agreement's at-will employment provision did not change the outcome because public policy limitations on at-will termination exist independently of contract terms as the court noted.
This decision highlights the critical need for employers to draft arbitration clauses with precision, explicitly including statutory claims if they want those disputes subject to arbitration. Otherwise, employees may pursue such claims in court despite arbitration provisions.
By the numbers:
- 2026 — Year of Morales v. Superior Court ruling
- 122 Cal. App. 5th 239 — Official case citation
- September 22, 2026 — Date of publication of the court decision
Yes, but: While the ruling limits arbitration clause scope here, employers can still craft broader clauses if they explicitly cover statutory claims and public policy disputes.