EMPLOYEES HAVE THE RIGHT TO WITHDRAW FROM ARBITRATION WHEN

EMPLOYERS FAIL TO PAY ARBITRATION FEES

Employees are often asked to sign arbitration agreements as a condition of their employment, meaning that employees are forced to submit any legal dispute to arbitration rather than proceed in court. In doing so, employees waive effectively lose their right to a jury trial. Concerned with employers delaying arbitration proceedings and thus delaying the efficient resolution of an employee’s disputes, the California Legislature enacted Sections 1281.97 and 1281.98 to provide protection against such delays by outlining payment procedures.

California’s Code of Civil Procedure sections 1281.97 and 1281.98 provide that if the drafting party (i.e., the employer) fails to pay their portion of the required arbitration fees within 30 days after they are due, the employer has “materially breached” the arbitration agreement and waives their right to compel arbitration. This means that when an employer materially breaches their arbitration agreement by failing to pay their fees on time, the employee has the option to withdraw their claim from arbitration and proceed in court. Moreover, the employee has the right to seek attorneys’ fees and costs.

Although the statute was enacted in 2019, numerous California court decisions have made very clear that this 30-day deadline outlined by sections 1281.97 and 1281.98 is to be followed strictly; there is absolutely no excuse for noncompliance by an employer. The recent appellate case of Suarez v. Superior Court of San Diego County serves as a reminder of just how unforgiving this rule is towards employers who do not make timely payments.

In Suarez v. Superior Court of San Diego County, an employee sued his employer for wage and hour violations. The employer was successfully able to stay the action in court and move the claim into arbitration, as provided by the arbitration agreement in the employment contract. On December 2, 2022, the arbitration provider issued an invoice for the arbitration filing fee via email, which indicated that payment was due “upon receipt.” Accordingly, per section 1281.97, the deadline for payment was January 1, 2023. The employer did not submit payment of his share of the fee until January 4, 2023.

Shortly thereafter, the employee filed a motion to continue to pursue his claim in civil court, arguing that the employer waived their right to arbitration by failing to pay their arbitration fees in accordance with section 1281.97.  In response, the employer filed a motion to compel arbitration, arguing that they paid their fees in a timely manner because they believed their payment deadline had been extended by an unrelated statute which grants an additional 2-day grace period for electronic service of court documents. The superior court found in favor of the employer, concluding that they made their payment on time because the deadline set out in section 1281.97 was extended by the statute the employer relied on.

On appeal, the appellate court reversed the superior’s courts finding, ruling that the unrelated statutory extension did not apply to the 30-day deadline, thus putting the employer in material breach of the arbitration agreement. This court felt no sympathy for the employer’s wrongful reliance on an unrelated statute, stating that the employer created the exact problem the Legislature sought to avoid when they failed to timely pay their share of the arbitration fees even after forcing the employee to submit to arbitration via an employment contract. The court further reasoned that an emailed arbitration invoice was not an “electronically served court document,” and as such, the 2-day grace period does not work in conjunction with section 1281.97. In reaching this conclusion, the court further emphasized what decisions before it have consistently held; the 30-day deadline imposed by section 1281.97 is to be strictly enforced with no exceptions.

In conclusion, employees may still elect to withdraw from arbitration if employers fail to timely pay their arbitration fees. Ricardo Lopez Law has helped numerous clients withdraw from arbitration and afford them the opportunity to seek justice before a jury—not just an arbitrator.

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