Standard form contracts, also called adhesion contracts, are legally binding agreements where one party, typically a stronger entity, drafts the terms, leaving the other party (often a consumer or employee) with limited negotiating power.
In response to concerns about the fairness of adhesion contracts that mandate arbitration in consumer and employment contexts, the California legislature implemented safeguard measures. One such measure, section 1281.97 of the California Civil Procedure Code, mandates businesses that draft arbitration agreements to pay their share of arbitration expenses within 30 days of the due date.
According to section 1281.97, failing to comply with this timeline is considered a "material breach" of the arbitration agreement, resulting in forfeiting the right to arbitration as outlined in the contract. This then allows employees to pursue legal action in court if they so choose.
Recent case, Suarez v. Superior Court (2024), exemplifies employers' attempts to circumvent section 1281.97. In this case, the employer, Rudolph & Sletten, Inc. (R&S), argued that alternative filing requirements in Section 1010.6 of the California Civil Procedure Code justified their delayed payment of arbitration fees. Additionally, R&S contended that Suarez's non-payment constituted a failure to initiate arbitration and asserted that the Federal Arbitration Act (FAA) preempts section 1281.97 altogether.
Initially siding with R&S, the trial court denied Suarez's motion to waive arbitration due to late payment, and Suarez appealed.
On appeal, the Court deemed R&S's argument regarding the extension of the payment deadline invalid. The Court clarified that section 1010.6, which deals with the electronic service of court filings, simply does not apply to the email transmission of an arbitration fee invoice.
Concerning Suarez's alleged failure to initiate arbitration due to non-payment, the Court found that section 1281.97 focuses on the responsibilities of the party who drafted the arbitration agreement (in this case, R&S) and does not impose penalties on employees for non-payment. Lastly, the Court disagreed with R&S's argument that the FAA preempts Section 1281.97, stating that section 1281.97 actually aligns with the FAA's goal of safeguarding arbitration rather than prohibiting or discouraging arbitration agreements.
In light of this review, the Court of Appeal instructed the trial court to vacate its previous order compelling compliance with arbitration and denying Suarez's motion, allowing Suarez to pursue litigation in court.
Suarez demonstrates the significance of timely payment of arbitration fees and rejects attempts to extend statutory deadlines beyond their intended scope. Employees and employers should be aware of the payment requirements for arbitration fees, as they can significantly impact whether a claim goes to arbitration or to court.