The California Supreme Court's recent decision inHohenshelt v. Superior Courtaddressed whether California's Code of Civil Procedure section 1281.98, which requires the party that drafted the arbitration agreement to pay arbitration fees within 30 days of the due date or face consequences such as forfeiting arbitration rights, is preempted by the Federal Arbitration Act (FAA).
The Court held that section 1281.98 is not preempted by the FAA but clarified that courts should not apply the statute as a rigid, automatic forfeiture rule – as many courts had been doing. Instead, courts may excuse late payments or nonpayments that are not willful, grossly negligent, fraudulent, or due to impossibility.
For employers, this means that while timely payment of arbitration fees remains critical, an inadvertent or excusable delay will not automatically result in the loss of the right to arbitrate. The Court emphasized that the legislative intent behind section 1281.98 was to deter strategic nonpayment of fees that could stall or obstruct arbitration, not to penalize honest mistakes or excusable neglect. That said, employers should be prepared to demonstrate good faith and a lack of willfulness for any late payment or nonpayment if they seek relief from the arbitration forfeiture provisions of section 1281.98.
Ultimately, this decision provides some flexibility to employers but reinforces the importance of diligent compliance with arbitration fee obligations to avoid unnecessary litigation over the right to arbitrate.
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