By Connor M. Day
Employers frequently require employees to sign arbitration agreements as a condition of their employment. In 1961, the California Legislature enacted the California Arbitration Act (“CAA”), codified in Code of Civil Procedure §§ 1280 – 1294.4, as a way to protect the rights of private parties to resolve their disputes through the “efficient, streamlined procedures” of arbitration. In 2019, the California Legislature added Sections 1281.97 and 1281.99, to lay out the procedures for payment of the arbitration fees and to provide for the imposition of penalties on an employer who fails to pay such fees within thirty (30) days after the due date. The penalties for failing to timely pay arbitration fees can be stiff, and include the following:
- A waiver of the employer’s right to compel arbitration.
- Payment of attorneys’ fees and costs relating to the arbitration.
- Payment of the employee’s reasonable attorneys’ fees and costs incurred as a result of the employer’s failure to pay the arbitration fees within thirty (30) days after the due date.
- Evidentiary sanctions, terminating sanctions, and contempt sanctions.
For employers who have drafted arbitration agreements that are governed by the CAA, two recent cases serve as a staunch reminder about how critical it is for employers to timely comply with their payment obligations under the CAA.
In Gallo v. Wood Ranch USA, Inc., No. B311067, 2022 WL 2913128 (July 25, 2022), a former employee, Sunny Gallo, sued her former employer, Wood Ranch USA, Inc., alleging multiple claims for discrimination and retaliation on the basis of gender and religion in violation of the California Fair Employment and Housing Act (“FEHA”). Wood Ranch USA, Inc. successfully moved to compel arbitration of Gallo’s claims, but failed to pay its share of the arbitration fees within thirty (30) days after the due date. The Court held that Wood Ranch USA, Inc.’s failure to timely pay the arbitration fees resulted in a waiver of its right to compel arbitration, and Gallo was permitted to pursue her claims in the superior court.
Two months later, in Espinoza v. Superior Court of Los Angeles County, 83 Cal.App.5th 761 (September 27, 2022), the Second District Court of Appeal held that the statutory payment deadline set forth in Section 1981.97 must be strictly enforced. In Espinoza, the Court rejected the employer’s argument that it should not be subject to penalties because its failure to pay the arbitration fees was inadvertent and did not result in any prejudice to the employee. The Court stated that the CAA was unambiguous with regard to when the payment must be made, and that a court has no discretion in determining whether to apply the remedies afforded to an employee, regardless of whether or not the delay in payment was inadvertent or otherwise excusable.
Gallo and Espinoza are a staunch reminder to all employers to timely pay their arbitration fees if they want to enforce their arbitration agreements. Both cases make it clear that an employer’s payment obligations under the CAA will be strictly enforced, and that no excuse will relieve an employer of its obligations to timely pay its share of arbitration expenses. Therefore, employers must be careful not to allow an arbitration invoice to get lost in the shuffle, or they could lose their right to arbitration and be on the hook for payment of the employee’s fees and costs, in addition to other sanctions.
If you have any questions about the CAA or arbitration agreements in general, please contact Ferber Law.