Attention California Employees: Ninth Circuit and California Courts Deliver a Quartet of Employment Law Reminders

The Ninth Circuit and California courts recently issued a series of significant employment decisions addressing arbitration agreements, bonus calculations, and workplace investigations. Although the cases arise in different contexts, they share a common theme: Courts continue to closely scrutinize employers’ agreements, pay practices, and litigation decisions. Below is a summary of each decision and the practical lessons employers should take away.

O’Dell v. Aya Healthcare Servs., Inc., 171 F.4^th 1173 (9^th Cir. 2026)

Former employees of a travel-nursing agency filed a putative class action for wage-related violations. The agency had entered into arbitration agreements with each employee, which contained a clause requiring an arbitrator (not a court) to determine the validity of the arbitration agreements. The district court sent four cases to separate arbitrations. Two arbitrators found the agreements valid, while two other arbitrators found them invalid. 

Relying on the two unfavorable arbitration rulings, the district court invalidated the agreements to preclude arbitration with respect to 255 other employees who had separate arbitration agreements with the agency. The Ninth Circuit reversed, holding that the district court’s approach was not compatible with the Federal Arbitration Act (FAA). Among other things, the panel found:

• The FAA did not intend to allow invalidation of agreements based on individual arbitrator rulings in separate proceedings involving different parties;
• Treating a handful of arbitration decisions as binding on other parties would violate the FAA’s principle of consent; and
• The district court’s ruling to deny enforcement of the agreements effectively transformed the individualized arbitral proceedings into a de facto class action to which the parties never agreed.

Note: On June 30, 2026, Governor Newsom signed into law AB2155, amending the California Arbitration Act (CAA) to provide that arbitration agreements are unenforceable under the CAA to the extent they would be unenforceable under the FAA. Once effective, employers can no longer rely on the CAA to enforce arbitration agreements that are excluded from enforcement under the FAA, such as predispute arbitration agreements covering sexual assault or sexual harassment disputes.

Santana v. Studebaker Health Care Ctr., LLC, 120 Cal. App. 5^th 1 (2026)

A former nursing facility employee filed a putative class action for wage-related claims, including a PAGA claim. Pursuant to three arbitration-related agreements signed during onboarding, including a class action waiver, the employer moved to compel arbitration of the employee’s individual claims. The trial court denied the motion finding the agreements were unenforceable due to conflicting and ambiguous terms among the three arbitration-related documents.

The Court of Appeal reversed, noting that:

• Although the agreements contained some ambiguities and minor inconsistencies, it reflected a clear mutual intent to arbitrate employment-related disputes;
• The agreements were not so uncertain as to be unenforceable, and any conflicting provisions could be severed; and
• While the agreements reflected some procedural unconscionability as contracts of adhesion, the terms were not substantively unconscionable.

Martinez v. Sierra Lifestar, Inc., 119 Cal. App. 5^th 1303 (2026)

A former emergency medical technician filed a putative class action alleging the employer systematically miscalculated the “regular rate of pay” by excluding certain nondiscretionary bonuses from the calculation, which resulted in underpayment of overtime, double time, and meal and rest period premiums for himself and 135 other current and former employees. The employer offered 10 types of bonuses, each with its own criteria, and one of which the employee received on a single occasion. The trial court denied class certification, reasoning that the employee’s claims were not representative of the putative class because he only received one type of bonus, while others received different bonuses involving unique circumstances and potential defenses. 

The Court of Appeal reversed, clarifying that:

• The key issue—whether the bonuses were properly excluded from the regular rate of pay because it was in the nature of a gift and/or was discretionary—applied across the putative class, despite the differences in the types of bonuses received. 

Paknad v. Superior Court, 119 Cal. App. 5^th 1256 (2026)

While employed, plaintiff made formal complaints of discrimination, harassment, and retaliation. In response, the company retained an outside attorney to investigate the allegations. After interviewing multiple witnesses and reviewing relevant documents, the attorney prepared two reports summarizing her findings and conclusion. The company subsequently terminated the plaintiff, who then sued the employer for various employment-related claims. 

The company asserted an avoidable consequences defense (i.e., it took reasonable steps to prevent and correct workplace harassment). In support, the company emphasized the thoroughness and independence of the investigation, including retaining an independent, outside investigator who interviewed numerous witnesses and reviewed a “large volume of documentary evidence.” Thereafter, the plaintiff filed a motion to compel production of the reports and investigative materials, which the trial court denied. 

Following plaintiff’s petition for relief, the Court of Appeal issued an opinion concluding that once an employer puts the adequacy of an investigation directly at issue, the employer cannot assert attorney-client privilege or work product protection to preclude an examination of the investigation’s adequacy. The Court of Appeal then directed the trial court to:

• Vacate its order denying the motion to the extent that it relates to the investigative reports and materials; and
• Conduct a review for documents that might contain core work product to determine whether some protection was warranted. 

Upon review, the trial court found that the company’s redactions were appropriate because they consisted of “an attorney’s impressions, conclusion, opinion, or legal research or theories” and, thus, were not discoverable. The parties continued to disagree on the scope of the waiver—specifically, the plaintiff asserted that the work product protection extended only to discussions of unrelated cases or specific legal issues or strategies, while the company asserted that the investigator’s “findings, mental impressions, and conclusions” regarding the allegations were protected. 

Thereafter, the plaintiff filed a second petition for relief whereupon the Court of Appeal issued a second opinion addressing mischaracterizations of its prior opinion and clarifying the scope of the waiver. In sum, the Court of Appeal concluded that:

• By voluntarily putting otherwise privileged information at issue in its defense, the company “has waived attorney-client privilege and attorney work product protection as to (1) all [its] factual findings about [plaintiff’s] allegations of discrimination, harassment, or retaliation, and (2) information—whether in [its] reports or the underlying investigative materials—relevant to the scope or adequacy of [its] investigation of [plaintiff’s] allegations.”

Accordingly, the Court of Appeal ordered the trial court to vacate its prior acceptance of the redactions, conduct further in camera review, and disclose all materials within the scope of the waiver.   

Employer Takeaways

Taken together, these decisions reinforce several recurring themes in California employment law:

• Arbitration agreements remain enforceable when carefully drafted;
• Class certification can turn on common legal questions rather than factual differences;
• Employers must carefully evaluate compensation practices involving bonuses; and
• Litigation strategies can have significant privilege implications.

Employers should use these decisions as an opportunity to review existing agreements, workplace investigations protocol, and wage-and-hour practices before disputes arise. Some action steps to consider include the following:

• Review and update arbitration agreements to ensure they clearly reflect the parties’ intent, avoid unnecessary inconsistencies, and remain enforceable under evolving federal and California law.
• Evaluate bonus and overtime practices to confirm that nondiscretionary bonuses are properly included in regular-rate calculations when required.
• Carefully consider litigation strategy before relying on the adequacy of workplace investigations as a defense, as doing so may waive attorney-client privilege and work product protection.
• Conduct workplace investigations with the expectation that investigative materials may ultimately become discoverable if the employer places the investigation directly at issue in litigation.
• Monitor developments affecting arbitration and class action litigation, including changes to California law and evolving court decisions interpreting the FAA and PAGA. 

If you have any questions related to these decisions, or need assistance reviewing your organization’s policies and practices, please reach out to the Nukk-Freeman & Cerra Attorney with whom you typically work or call us at 619.292.0515.