California Supreme Court Makes Major Ruling Regarding Businesses'/Employers' 30-Day Arbitration Fee Payment Deadline under the California Arbitration Act.
After several years of conflicting rulings from several Courts of Appeal, the California Supreme Court has largely settled the dispute as to how a trial court should interpret the California Arbitration Act's ("CAA") 30-day arbitration fee payment deadline for businesses/employers.
Specifically, in 2020 under Senate Bill 707, and modified by Senate Bills 762 in 2022 and 1756 in 2024, the California legislature enacted legislation which required businesses/employers, specifically those who draft agreements that require consumers/employees to arbitrate their claims, to pay any invoiced arbitration fees within 30 days of receipt of the invoice, or be subject to automatic removal from arbitration and mandatory sanctions.
That has since been challenged in Hohenshelt v. Superior Court (Aug. 11, 2025, No. S284498) ___Cal.5th___ [2025 Cal. LEXIS 4936] ("Hohenshelt"), where the California Supreme Court addressed two principal points:
- Does the Federal Arbitration Act ("FAA") preempt Cal. Code Civ. Proc. § 1281.98?
- Are there any exceptions to Section 1281.98's 30-day deadline?
The California Supreme Court held: (1) no, Section 1281.98 is not preempted by the FAA; and (2) yes, longstanding contract principles for excusable nonperformance apply to the 30-day deadline.
Businesses and employers who litigate in arbitration need not dwell on the Court's FAA preemption ruling. Hohenshelt conclusively resolves that point, so businesses/employers can no longer rely on that argument to defend against liability under Section 1281.98 . What matters moving forward is the Court's holding on the exceptions. We discuss that component of the Court's ruling below.
Legal Background
Cal. Code Civ. Proc. § 1281.99 establishes a default rule in connection with the arbitration of consumer and employment disputes: the arbitration agreement's "drafting party" (almost always the business/employer) is required to pay the fees and costs invoiced by an arbitrator "within 30 days after the due date" during the pendency of an arbitration. (Section 1281.98(a)(1).)
The statute states if the business/employer fails to timely pay those arbitration fees within 30 days of receipt of the invoice, the business/employer "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." (Id.) The employee/consumer may then withdraw their claim from arbitration, proceed in court, and bring a motion "to recover all attorney's fees and all costs associated with the abandoned arbitration proceeding", at which time the trial court "shall impose sanctions" on the business/employer in the form of monetary sanctions ("reasonable expenses, including attorney's fees and costs, incurred by the employee or consumer as a result of the material breach") and even permissive evidentiary, termination, and contempt sanctions. (Sections 1281.98-1281.99.)
Several Courts of Appeal have held that there are "No Exceptions" for failing to comply with the 30-day payment deadline and that trial courts must strictly enforce the statute. (See Hohenshelt at p. 28, quoting Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 775.) These rulings have resulted in significant monetary liability, sometimes tens of thousands of dollars, to businesses and employers who fail to pay an arbitrator's invoice within 30 days, even if that payment was 12 hours late.
California Supreme Court Ruling
In its ruling, the California Supreme Court held "we reject that rigid construction and instead conclude that the statute does not abrogate the longstanding principle, established by statute and common law, that one party's nonperformance of an obligation automatically extinguishes the other party's contractual duties only when nonperformance is willful, grossly negligent, or fraudulent." (Hohenshelt at p. 4.) Businesses and employers can now show that the delay in payment was excusable under Cal. Code Civ. Proc. § 473(b), Cal. Civ. Code § 3275, or Cal. Civ. Code § 1511.
For businesses and employers, this means that unless the failure to make timely payment was "willful, grossly negligent, or fraudulent," the business/employer may avoid the harsh remedies laid out in Section 1281.98 if their nonpayment resulted from "a good faith mistake, inadvertence, or other excusable neglect." (Hohenshelt at p. 4.) For example, if a business/employer mistakenly fails to place a check in the mail on time, and that check is received by the arbitration organization on the 32nd day after receipt of the invoice, a trial court may find the late payment to be excusable such that the matter should stay in arbitration, and no sanctions should be awarded.
The Court also noted that the 30-day rule is not invariable in that "parties are free to contract for any due date they want by adopting their own 'provision in the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs.'" (Hohenshelt at p. 4, quoting Section 1281.98(a)(2).)
The Court declined to address whether parties can contract to opt out of the CAA because the appellant did not raise this argument. (Hohenshelt at pp. 10-11.) But as alluded to in Justice Groban's concurring opinion, existing case law may support the parties' right to opt out of the CAA in their contract. (Hohenshelt at pp. 59-64.)
Key Takeaways for Businesses and Employers
While Hohenshelt is arguably a pro-business ruling, businesses and employers should always comply with the arbitration fee payment deadlines to even avoid the issue. In the event of late or nonpayment, Hohenshelt does not change a plaintiff's statutory right to seek removal of their action from arbitration and request mandatory sanctions. A late payment does not, by default, constitute a " good faith mistake, inadvertence, or other excusable neglect." Rather, the California Supreme Court has simply opened the door for a business/employer to prove that the late payment fell under one of those categories. This will likely require the business/employer to expend legal fees and costs necessary to prove that point in the Superior Court, money that can be saved by simply making timely payment within 30 days of receipt of the arbitrator's invoice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
