Many California employers and their counsel remain blissfully ignorant of the latest “gotcha” law in California, which can easily derail an otherwise perfectly planned arbitration.  Back in 2019, the California legislature, an implacable foe of arbitration agreements, set a booby trap for unsuspecting employers by requiring the timely payment of arbitration fees and costs on pain of “waiving” the right to arbitrate.  (The same gotcha applies to consumer arbitrations.)

Specifically, Section 1281.98(a)(1) of the Code of Civil Procedure provides that in an employment or consumer arbitration, if the drafting party (i.e., the defendant) does not pay the invoiced costs and fees to the arbitration provider within 30 days of the due date, that party “is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration.”  It bears noting that the employee/consumer relying upon this statute to torpedo the arbitration need not plead or prove any form of harm or damage resulting from this so-called “material breach” of the arbitration agreement.

In Cvejic v. Skyview Capital, LLC, yet another appellate court applied this unforgiving statute in an employment case and found that by failing to pay the required fees within 30 days of the due date, the employer was in “material breach of the arbitration agreement” even though the arbitration panel actually set a later payment deadline after being notified of Skyview’s failure to pay.  The court held that the new deadline did not retroactively “cure” Skyview’s material breach and subsequent triggering of Section 1281.98.

This is just the most recent court to so hold, following a similar 2022 decision by a state appellate court on which we previously reported.

While this latest legislative attack on arbitration may someday get struck down by a federal court that is less hostile to arbitration (see, e.g., Chamber of Commerce v. Bonta, the recent opinion from the Ninth Circuit striking down Section 432.6 of the Labor Code), until that happens, employers and their counsel should be vigilant in making timely payment of the arbitration fees and costs as soon as they get the bill!

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