California Employment Law Blog

The Clock is Ticking: Implications of Late Payments in Arbitration

Posted by Timothy B. Del Castillo | Feb 13, 2024 | 0 Comments

Originally passed in 1961, the California Arbitration Act (CAA) aimed to simplify dispute resolution through arbitration. In 2019, the CAA saw additions with sections 1281.97 and 1281.98, specifically addressing payment procedures in arbitration agreements. A recent case, Doe v. Superior Court of City and County of San Francisco (2023), raised a significant issue regarding the timely payment of arbitration fees under the CAA.

Jane Doe, the plaintiff in a sexual harassment suit against her former employer and manager (real parties), was required to pay arbitration fees by September 1, 2022. Pursuant to Code of Civil Procedure section 1281.98(a)(1), these fees were to be paid within 30 days of the deadline, by October 3, 2022. However, the real parties' payment was not received until October 5, two days after the statutory grace period had expired. This was because the real parties chose to mail a check on September 30, despite other available methods of payment.

The core dispute here concerned the interpretation of section 1281.98(a)(1), which defines nonpayment of arbitration fees within 30 days as a material breach, resulting in default and a waiver of arbitration rights. The petitioner contended that payment must be received within the deadline ending on October 3, while the real parties maintained that the term "paid" only required the payment to be sent out prior to the deadline.

In the absence of a statutory definition of the term “paid”, the Court of Appeal consulted dictionaries but found no conclusive definition. To address this ambiguity, the Court turned to California legislative history and recent case law.

The Court found that in drafting section 1281.98, California's legislature was focused on discouraging employers from strategically withholding payment of arbitration fees through the strict enforcement of payment deadlines. In order to best serve this legislative purpose, the Court held that the phrase "paid within 30 days" was therefore best interpreted as requiring arbitration payments to be strictly made and received within 30 days of the due date. 

While previous courts had not clearly defined the meaning of “paid,” the Court of Appeal found that recent case law demonstrated that section 1281.98 had been interpreted as requiring a clear and unambiguous rule for material breach. According to the Court, this case law aligned with California's legislative intent for strict enforcement of payment deadlines.

Applying this review, the Court concluded: “We strictly enforce the 30-day grace period in section 1281.98(a)(1) and conclude that fees and costs owed for a pending proceeding must be received by the arbitrator within 30 days after the due date. We do not consider the proverbial check in the mail as payment and agree with petitioner that the real parties' payment, received more than 30 days after the due date established by the arbitrator, was untimely.”

Employers who have drafted arbitration agreements should be aware that, under California Code of Civil Procedure section 1281.98(a)(1), they will be found in material breach of the agreement and waive their right to compel arbitration if the fees or costs of arbitration are not paid and received within 30 days of the due date. This case highlights the fact that failure to pay on time could result in a waiver of the employer's right to arbitrate, which could be a costly mistake.

About the Author

Timothy B. Del Castillo

Tim Del Castillo is Founding Partner of Castle Law: California Employment Counsel, PC.


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