California Court of Appeal Affirms Severability of Collateral NDA Provisions and Enforces Arbitration Agreement in Wise v. Tesla Motors, Inc.

In Wise v. Tesla Motors, Inc. (Wise),¹ the California Court of Appeal sent a clear signal that courts may not use collateral defects in related employment agreements to invalidate an otherwise enforceable arbitration agreement. Even where contemporaneously executed agreements are construed together, Wise confirms that severance, rather than wholesale invalidation, remains the appropriate remedy when unconscionable provisions are collateral and do not taint the arbitral forum. 

Background

On 22 December 2025, the California Court of Appeal, First Appellate District, Division Five, issued a published decision in Wise addressing whether an employment arbitration agreement remains enforceable when executed contemporaneously with a nondisclosure and inventions assignment agreement (NDIAA).

The plaintiff, a former Tesla employee, signed an offer letter containing a broad arbitration agreement and, on the same day, executed a separate NDIAA. After her employment ended, she sued Tesla asserting claims under the California Fair Employment and Housing Act and for wrongful termination in violation of public policy. Tesla moved to compel arbitration.

The trial court found the arbitration agreement largely unobjectionable by itself, but construed it together with the NDIAA under California Civil Code section 1642. It concluded that two provisions in the NDIAA—a waiver of any bond requirement for injunctive relief and a clear-and-convincing evidentiary burden on the employee to establish that information was in the public domain—were substantively unconscionable. On that basis, the trial court denied arbitration, reasoning that unconscionability permeated the arbitration agreement and that severance was inappropriate.

The Court of Appeal’s Decision

The Court of Appeal reversed. The court assumed that the arbitration agreement and NDIAA were properly construed together under California Civil Code section 1642 and that the challenged NDIAA provisions were unconscionable. Even so, it held that the trial court abused its discretion by refusing to sever the provisions and declining to enforce the arbitration agreement.

Applying the California Supreme Court’s decision in Ramirez v. Charter Communications, Inc.,² the court emphasized that severability requires a qualitative inquiry focused on whether unconscionable provisions taint the arbitration agreement’s central purpose. The court held that the NDIAA provisions at issue were collateral: they did not affect who must arbitrate, what claims are arbitrable, or how arbitration proceeds, and they did not apply to the plaintiff’s asserted claims, which did not implicate Tesla’s confidential or proprietary information.

The court further concluded that severance was straightforward and required no reformation, and that enforcement of arbitration served the interests of justice. It rejected the contention that the NDIAA provisions reflected a systematic effort to impose arbitration as an employer-favorable forum, noting that the provisions applied broadly to all proceedings and bore no meaningful nexus to the arbitration process itself.

In reaching this conclusion, the court distinguished Silva v. Cross Country Healthcare, Inc.,³ (Silva), Alberto v. Cambrian Homecare,⁴ and Gurganus v. IGS Solutions LLC,⁵ which involved arbitration-specific asymmetries or provisions that directly impaired the arbitral forum. By contrast, the provisions at issue in Wise did not affect the fairness or mutuality of arbitration. The Wise decision thus reinforces that Silva is not a license to invalidate arbitration agreements based on any unconscionability found elsewhere in onboarding documents but rather is limited to situations where unfairness meaningfully infects arbitration itself.

Implications for Employers

Wise provides further clarity on the enforceability of arbitration agreements executed alongside confidentiality or restrictive covenant agreements. While courts may consider contemporaneously executed agreements together under California Civil Code section 1642, Wise provides important reassurance for employers that arbitration is not forfeited merely because a related agreement contains problematic provisions. Where the arbitration agreement itself is bilateral and procedurally sound, and the challenged provisions are collateral rather than arbitration-specific, severance—rather than wholesale invalidation—remains the appropriate remedy under California law.

For employers, the decision underscores the value of maintaining arbitration agreements that stand on their own and are free of arbitration-specific overreach, while confirming that collateral defects in related onboarding agreements will not necessarily preclude enforcement of arbitration. As a practical matter, employers should ensure that arbitration provisions are drafted as self-contained and mutually applicable, without incorporating or depending on confidentiality or injunctive-relief terms that could invite severability challenges.