California Employment Law Blog

Untimely Tesla: How Missed Fee Payments Can Impact Arbitration Agreements

Posted by Timothy B. Del Castillo | Jul 03, 2024 | 0 Comments

The case of Dominique Keeton vs. Tesla, Inc. (2024), is important for both California employers and employees as it deals with workplace discrimination, harassment, and the regulations surrounding arbitration agreements.

Dominique Keeton commenced working for Tesla in 2017 and, like many employees, signed an agreement declaring that any disputes would be settled through arbitration instead of in court. In August 2021, Keeton filed a lawsuit against Tesla, asserting she was harassed, discriminated against due to her race, and retaliated against for complaining. Both parties consented to handle this dispute through arbitration, and the court placed the lawsuit on hold while arbitration continued.

However, Tesla did not pay the required fees for arbitration on time. California legislation, namely Code of Civil Procedure section 1281.98, states that if the party which created the arbitration agreement (in this instance, Tesla) does not pay these fees within thirty days, it violates the agreement. As Tesla missed this deadline, Keeton requested that the court cancel the arbitration and allow her to take her case back to court. The trial court agreed, lifting the hold on her lawsuit and imposing a $1,000 penalty on Tesla.

Tesla disagreed with this decision and appealed, arguing three main points:

  • The arbitration agreement stated that the arbitrator, not the court, should determine if the agreement was violated.

  • The Federal Arbitration Act (FAA), a federal law, should override the California law.

  • The California law was unconstitutional because it unfairly changed the terms of the arbitration agreement.

The Court of Appeal disagreed with Tesla on all three points.

First, the Court stated that the agreement did not clearly state that the arbitrator should determine issues of breach or arbitrability. Merely because the agreement mentioned JAMS rules (which generally delegate such issues to the arbitrator) was insufficient, particularly since Keeton, as an employee, might not entirely comprehend this.

Second, the Court discovered that the FAA did not override California's law. The FAA supports arbitration agreements but permits state laws that ensure fair and timely arbitration procedures. The court determined that the California legislation, which sets a strict deadline for paying arbitration fees and allows employees to return to court if the deadline is missed, upholds the goals of the FAA.

Third, the Court ruled that the California law was not unconstitutional. While Tesla argued that the law unfairly changed the agreement terms, the court noted that the law intended to ensure prompt arbitration, which benefits both parties. The law's aim is to prevent employers from delaying arbitration by not paying fees promptly, and it provides a reasonable thirty-day grace period to facilitate late payments.

The Court of Appeal affirmed the trial court's order, allowing Keeton to proceed with her claims in court and recover her costs on appeal. 

This case highlights the critical importance of paying arbitration fees on time and following state rules that ensure disputes are resolved efficiently. For California employers, it emphasizes the need to strictly adhere to arbitration agreements and legal deadlines to avoid lawsuits and penalties. For employees, it reaffirms their right to take legal action if their employers fail to honor arbitration agreements. 

In any employment dispute, seeking competent legal counsel is essential to navigate the complexities of arbitration and litigation successfully.

About the Author

Timothy B. Del Castillo

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

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