California
California: Arbitration Agreements Must be Read in Context
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APPLIES TO All Employers with Employees in CA |
EFFECTIVE FEB 19, 2026 |
QUESTIONS? Contact HR On-Call |
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Discussion
In Ayala-Ventura v. Superior Court, the California Court of Appeal examined whether an arbitration agreement between an employee and her commercial janitorial employer was unconscionable and therefore unenforceable. Unconscionability analysis involves two components: procedural unconscionability, which focuses on how the contract was formed (e.g., pressure, surprise, or lack of meaningful choice), and substantive unconscionability, which examines whether the contract’s actual terms are unreasonably one-sided or oppressive. Both elements must be present for an agreement to be deemed unenforceable, though not necessarily to the same degree.
The employee brought wage and hour claims in court, but the employer sought to enforce her arbitration agreement. The employee argued the agreement was unenforceable because it was overbroad in scope, indefinite in duration, and lacked mutuality. On review, the court found only minimal procedural unconscionability. While the agreement was a pre-printed, take-it-or-leave-it form, the circumstances of its formation did not reflect significant oppression or surprise. The agreement was a standalone document written in clear, legible type with labeled sections, available in both English and Spanish, and expressly informed the employee of her right to consult legal counsel before signing. There was no evidence of time pressure, duress, or manipulation.
The court also rejected all three of the employee’s substantive unconscionability arguments. On scope, the court construed the agreement’s broad language narrowly, limiting it to employment-related claims to preserve the agreement’s validity. It further noted that, unlike a large institution such as a university with hospitals or athletic facilities, a commercial janitorial company poses little realistic risk of unrelated claims ever arising. On duration, the court found that the agreement’s survival past the end of employment was not unconscionable given the employer’s limited operational footprint. On mutuality, the court found the agreement adequately bilateral, as it equally bound both the employer and the employee to arbitrate their respective claims.
Ultimately, the court upheld the agreement as valid and enforceable. The arbitral scheme was deemed fair and accessible, ensuring the employee retained meaningful access to pursue her statutory claims. The decision reinforces that courts will evaluate arbitration agreements in context, and that a broad or lengthy agreement is not automatically unconscionable when the employer’s scope and reach are limited.
Action Items
- Review arbitration agreements with legal counsel for compliance.
California: Court Upholds AI Training Data Transparency Law
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APPLIES TO Covered Businesses with Publicly Available AI in CA |
EFFECTIVE MAR 4, 2026 |
QUESTIONS? Contact HR On-Call |
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Discussion
California’s Artificial Intelligence Training Data Transparency law (AB 2013) took effect January 1, 2026, requiring developers of generative AI systems available to Californians to publicly post summaries of the datasets used to train their systems, including whether the data includes personal or copyrighted content, when it was collected, what modifications were made, and how it is used in training.
In December 2025, X.AI filed suit against the California Attorney General, arguing that AB 2013 would effectively destroy trade secrets and gut the AI industry by giving competitors a roadmap to reverse-engineer rival models. X.AI sought a preliminary injunction to halt enforcement while the case proceeded. On March 5, 2026, a U.S. district court denied the injunction, finding that X.AI had not demonstrated a likelihood of success on the merits of any of its three arguments. Specifically, the plaintiff raised three objections to AB 2013: (1) that it violates the Takings Clause of the Fifth Amendment; (2) that it violates the First Amendment; and (3) that it is unconstitutionally vague.
Regarding the trade secrets argument, the court acknowledged that training datasets could potentially qualify for protection, but found X.AI’s pleadings too generalized and abstract to demonstrate that its specific datasets were meaningfully distinct from competitors’ in a way that merited protection. On vagueness, the court rejected the argument that terms like “dataset” and “data point” were undefined, noting that X.AI itself used those terms fluently throughout its complaint. On free speech, the court found that X.AI had not shown at this stage that the law’s disclosure requirements violated First Amendment rights.
As of now, the law remains enforceable while litigation continues, although an appeal has already been filed. Employers should continue to look for developments on this issue.
Action Items
- “Developers” of generative AI systems should evaluate whether the bill applies to them.
- Review third-party AI providers’ compliance with AB 2013’s requirements.
- Audit and document datasets used in AI training to identify any personally identifiable or copyrighted content that may be subject to disclosure.
- Consult with legal counsel regarding trade secret protections and how to structure required disclosures.
- Monitor ongoing litigation and legislative developments related to AI enforcement.
California: Parties May Voluntarily Elect FAA Governance of Arbitration Agreements
On January 13, 2026, the California Court of Appeal affirmed an order compelling arbitration of an employee’s individual claims and dismissing her class claims in Tuufuli v. West Coast Dental Administrative Services, LLC. The court held that the FAA governs an arbitration agreement where the parties expressly agree to its application, meaning employers do not need to independently establish that the underlying employment relationship involves interstate commerce in order for the FAA to apply. The court also affirmed the dismissal of the employee’s class, collective, and representative claims, finding the arbitration agreement’s express prohibition on such proceedings enforceable under the FAA. California employers should review their arbitration agreements with legal counsel to identify the governing law, the scope of arbitrable claims, and any limitations on class or representative proceedings.
Costa Mesa, CA: New Self-Checkout Staffing Ordinance
Effective April 20, 2026, the City of Costa Mesa will require drug retail establishments and qualifying food retail stores to meet new staffing and operational standards for self-checkout operations. Under the new ordinance, food retail establishments include stores that are: (1) over 15,000 square feet and primarily sell household food products, or (2) over 85,000 square feet with at least 10 percent of their sales floor dedicated to nontaxable food products. Covered employers must dedicate at least one employee to exclusively monitor self-checkout stations, maintaining a minimum ratio of one employee per every three self-checkout stations. Covered employers must also keep at least one traditional staffed checkout lane open whenever self-checkout is available. The ordinance also restricts self-checkout use to approximately fifteen items and prohibits processing of age-restricted products and items with theft-deterrent devices through self-checkout. Required public notices must be posted in customer-accessible areas, and employees are protected from retaliation for reporting violations. Retailers operating in Costa Mesa should evaluate whether the ordinance applies to their operations and update staffing plans and internal procedures.
REMINDER | San Francisco, CA: HCSO Reporting Requirements Due May 1, 2026
San Francisco employers covered by the Health Care Security Ordinance (HCSO) and/or the Fair Chance Ordinance (FCO) must submit their 2025 Annual Reporting Form to the San Francisco Office of Labor Standards Enforcement (OLSE) by May 1, 2026, or face a penalty of $500 per quarter. The HCSO applies to for-profit businesses with 20 or more workers and nonprofits with 50 or more workers operating within San Francisco, requiring them to report quarterly employee counts, HCSO-eligible employees, total health care expenditures, and health care coverage options offered. The FCO, which applies to any employer doing business in San Francisco with five or more employees, restricts the use of criminal background information, including banning criminal history checkboxes on job applications, and requires employers to report hiring totals, whether background checks were conducted, and whether individuals with conviction histories were hired. Both forms and reporting instructions are available on the Annual Reporting Form website.
REMINDER | California Pay Data Reporting Due May 13, 2026
Private employers with 100 or more employees or labor contractors anywhere, with at least one person in California, must complete the annually required pay data reporting by May 13, 2026. This reporting is required under California Government Code § 12999. Employers should note that state reporting is separate and different from federal EEO-1 reporting. Employers are required to report pay, hours worked, demographic, and other workforce data by establishment and job category. Note that the Civil Rights Department (CRD) released updated reporting templates and FAQs. Review the CRD’s website for more information.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2026 ManagEase