Many California employers require employees to execute arbitration agreements at the start of employment—these arbitration agreements waive an employee’s right to bring disputes with said employer in court. However, a California employer can potentially waive its right to compel arbitration of employment claims by failing to timely pay arbitration fees. Based on the general legal principle that a party to an arbitration agreement can waive its rights under that agreement through action or inaction, waiver can occur when a party’s conduct is inconsistent with their intent to arbitrate or results in prejudice to the other party. For example, failure to pay arbitration fees, failure to initiate the arbitration process, undue delay, or otherwise obstructing the arbitration process, could all potentially be viewed as conduct inconsistent with an intent to arbitrate that would substantiate waiver.
Enforcing an Arbitration Agreement Requires Strict Statutory Compliance By Employer
Having a better understanding of the law that controls arbitration provisions is critical to escaping their enforcement where possible. Under California Code of Civil Procedure, section 1281.98, when an employer fails to pay certain fees and costs within 30 days after the due date the employer is in material breach of the arbitration agreement if under that agreement the employer is obligated to pay such fees and costs. The relevant part of the statute reads:
(a)(1) In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, that the drafting party pay certain fees and costs during the pendency of an arbitration proceeding, if the fees or costs required to continue the arbitration proceeding are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration as a result of the material breach.
(Cal. Civ. Proc. Code, § 1281.98.)
California courts have specifically held under section 1281.98 that an employer’s failure to pay arbitration fees within 30 days of the due date can amount to a waiver of the right to arbitrate. The Court of Appeal for the First Appellate District strictly enforced the 30-day grace period in section 1281.98(a)(1) in Doe v. Superior Court (2023) 95 Cal.App.5th 346 where the employer was held to have lost their right to proceed in arbitration.
In Doe, the employer had mailed a check for payment of arbitration costs and fees that delivered to the arbitrator two days after the 30-day grace period had run. (Doe, 95 Cal.App.5th at 346.) The Doe employer had received an invoice for payment that was “due upon receipt.” However, the statute permits a 30-day grace period and therefore, payment must be received 30 days from the date of the invoice. The Court of Appeal held that receipt of payment even just two days late was a material breach of the arbitration agreement. This strict construction followed an analysis of legislative intent, case law and
Because fees and costs were not paid within 30 days after the due date, the Court of Appeal reversed the trial court’s denial of employee’s motion to vacate the order to compel arbitration and found that employer had waived its right to arbitration under section 1281.98(a)(1).
Making the Employer Face a Jury or Pay the Price of Arbitration
The employee has four courses of action to take after an employer breaches its payment obligation under 1281.98(b):
(1) withdraw the claim from arbitration and proceeding in a court of appropriate jurisdiction;
(2) compel arbitration but requiring the company to pay reasonable attorney’s fees and costs related to the arbitration;
(3) petition the court for an ordering compelling the company to pay all arbitration fees it is obligated to pay under the arbitration agreement or rules provided by arbitrator; or
(4) pay the company’s fees and proceed with the arbitration.
Cal. Civ. Proc. Code, § 1281.98(b)(1)–(4).
An employee can also seek attorney’s fees and costs incurred by the employee as a result of the material breach and sanctions under section 1281.99(a).
Takeaway: Know Your Rights Under the Law
Employees should be aware of their rights and protections throughout the course of arbitration. Employees who stipulate or are compelled to arbitrate should diligently pay attention to the language in the arbitration agreement and timelines. Specifically, the obligation for an employer to pay arbitration costs and fees arises from the language of the arbitration agreement itself. Also, the employee should note the trigger date for an employer to pay arbitration fees and costs. Section 1281.98 requires an employer to pay the arbitration costs and fees no later than 30 days after the “due date”—usually the date of the initial invoice requesting payment. If the employer fails to make a payment within the 30 days then waiver can be established to thwart the employer’s right to arbitration.
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