When Substantial Compliance Is Not Enough: A Cautionary Ruling For Employment Arbitration Actions
When Substantial Compliance Is Not Enough: A Cautionary Ruling For Employment Arbitration Actions

Since its enactment in 2020, employers have been forced to be mindful of the burdensome imposition of Code of Civil Procedure section 1281.97 et seq., which requires an employer to pay the full amount of arbitration fees within 30 days of an arbitrator’s invoice being due, unless the arbitration agreement specifies a different deadline. In a recent opinion titled Espinoza v. Superior Court, the Court of Appeals clarified that this deadline must be strictly followed and there is no leeway for “substantial compliance.” 

In Espinoza, a defendant employer failed to pay the arbitrator’s fees within the 30-day statutory deadline. The employer established that the delay was due to a clerical error and that, while the payment had been sent for processing within the 30-day period, the payment itself was not received by the arbitrator until approximately 8 days after the deadline had passed.  The trial court found that the employer had “substantially complied” with the statute, as the delay was inadvertent, and the plaintiff suffered no prejudice by the delay.  The Court of Appeal, however, held that Section 1281.97 does not allow a court to consider these factors.  Rather, the sole question is whether the employer made the payment within the 30-day deadline. As it was undisputed in Espinoza that the employer did not, this should have been both the beginning and the end of the inquiry for the trial court, and the plaintiff should have been permitted to proceed with her case in civil court.

While no fault can be found with the Court of Appeals of its interpretation of the decision, the opinion highlights the onerous burden all employers face in proceeding with arbitration.  If a defendant employer demands arbitration, it should be ready to pay upfront and within the deadline, or face returning to civil court and, worse, the imposition of monetary, evidentiary or even terminating sanctions.  The sole saving grace for employers under this law is that arbitration agreements can and should be drafted to extend the deadline for paying an arbitrator’s invoice, so as to avoid these types of issues.  Employers operating in California should review their arbitration agreements and consult with an experienced employment attorney to address these and other issues related to arbitration to avoid potentially costly missteps.


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