In the recent decision in Sanders v. Superior Court of Los Angeles County, the California Court of Appeal reinforced the consequences for employers who fail to timely pay arbitration fees in employment disputes.  This decision is another in a long line of cautionary reminders for employers to timely pay arbitration fees, as the failure to do so will result in not only the loss of the right to arbitrate, but also potentially severe sanctions.

Sanders tells an all too familiar story: after Sanders was terminated, she filed a putative class and Private Attorneys General Act (PAGA) representative action against her former employer Edward D. Jones & Co. alleging wage and hour violations and a PAGA claim.  The trial court compelled her individual claims to arbitration pursuant to a signed arbitration agreement and stayed the representative PAGA claim.  Sanders initiated arbitration, but Edward Jones ultimately failed to pay the required arbitration fees within 30 days of the invoice due date, which is a material breach of Code of Civil Procedure § 1281.98.

Sanders moved to vacate the arbitration order based on the employer’s default.  While the trial court denied the motion, the Court of Appeal granted Sanders’s petition, finding the employer had materially breached the arbitration agreement by missing the payment deadline.  The Court of Appeal affirmed the bright-line rule that there is no grace for employers who miss the fee payment deadline, regardless of whether the failure was intentional or due to inadvertence.  The court further expanded on prior rulings on the subject of federal preemption, finding that § 1281.98 promotes, rather than undermines, arbitration by ensuring that parties to arbitration agreements engage promptly.  Notably, the court disagreed with the reasoning in the Hernandez v. Sohnen Enterprises, Inc. decision, a case currently under review by the California Supreme Court, which held that an arbitration agreement that was exclusively governed by the Federal Arbitration Act (FAA) was not subject to California’s payment requirements.  In so doing, the Sanders court explained that the California Legislature found that delayed payment of fees was an issue that could prevent arbitrations from moving forward.

Key Takeaways for Employers:

• Timely Arbitration Fee Payments Are Mandatory—and Strictly Enforced: Employers should have processes in place to ensure arbitration fees are paid promptly. A calendaring system or dedicated point-person for managing arbitration billing may help avoid costly missteps.
• The FAA May Not Preempt California’s Fee Payment Deadline: Employers cannot rely on federal preemption to avoid the consequences of nonpayment. Indeed, California’s procedural rules may apply in state court even if the parties expressly adopt the federal procedural rules to govern the arbitration.

The Sanders decision underscores that arbitration agreements are not a “get-out-of-jury free” card; they come with binding obligations, particularly for employers.  Employers must rigorously track arbitration-related deadlines, communicate clearly with arbitration providers, and ensure their legal and human resource teams are aligned on responsibilities once a case is compelled to arbitration.  Failure to do so can result in the employer waiving the right to arbitrate, having onerous sanctions imposed and having the case sent back for a jury trial.