The 12 days of California Labor & Employment Series – Day 2: Failure to Timely Pay Arbitrator May Lose the Right to Arbitrate

Hinshaw & Culbertson - Employment Law Observer
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Hinshaw & Culbertson - Employment Law Observer

In the spirit of the season, we are using our annual "12 days of the holidays" blog series to address new California laws and their impact on California employers. On this second day of the holidays, my labor and employment attorney gave to me: two turtle doves and SB 762.

Over the last few years, California has implemented numerous laws regarding arbitration. In addition, the courts continue addressing cases involving whether a party may mandate arbitration. Prior to 2019, an employer could generally require an employee to enter into an arbitration agreement, even as a condition of employment. In addition, the drafting party was required to pay the arbitration fees and costs within 30 days after the due date. The arbitration debate included common issues such as: Are mandatory arbitration policies enforceable? Can an employer arbitrate an issue? Can an employee move the case from arbitration to state or federal court? AB 51, which took effect on January 1, 2020, banned mandatory arbitration agreements as a condition of employment. Yet, arbitration issues continue.

Generally speaking, larger employers have a specific and detailed process on how arbitration fee payments are to be made and who issues these payments. It is not always a quick process. Under these procedures payment can be delayed. In addition, under prior law, there were no requirements placed on the arbitrator with regard to when to send the invoice or advise of a due date. Due to this lack of oversight, employers could receive undisclosed arbitration payment extensions from the arbitrator in order to delay the arbitration. An arbitration cannot move forward until the payment was received. This created unwarranted delays. Enter SB 762.

SB 762 was enacted for two main reasons. First, to prevent an arbitrator from delaying the sending of the invoice to the drafting party. And, second, to prevent an employer from delaying payment and, in essence, delaying the arbitration. Under SB 762, arbitration fees and costs must be paid upon receipt of the invoice from the arbitrator, unless the arbitration agreement specifies otherwise. Failure to timely pay the arbitration fees and costs may result in a waiver of the arbitration provision and cause the case to be sent back to the courts. If additional fees or costs become due during the pendency of the arbitration, any extension of time for the due date to pay these fees and costs must be agreed upon by all parties.

With the enactment of SB 762, an arbitrator is now required to invoice the drafting party immediately. The invoice must include the full amount due and the due date. In addition, the arbitrator is required to send the invoice to all parties by the same means on the same day. This allows the other party or parties to calculate the deadline and determine if it is missed. The drafting party must issue payment upon receipt but no later than 30 days. Failure to do so results in a material breach allowing the employee to do either of the following: (1) withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction; or (2) compel arbitration in which the drafting party shall pay reasonable attorney’s fees and costs related to the arbitration.

Moving forward, it is recommended that any arbitration agreement include a provision on when arbitration fees should be paid. Failure to include that type of provision results in the payment being due upon receipt. This may be difficult for some employers to comply with. The failure to timely pay arbitration fees results in serious ramifications, including the potential inability to proceed with arbitration. Thus, it is imperative that the arbitration invoice be sent to the proper person so it may be timely paid.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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