Arbitrator Lacked Authority to Extend Deadline for Employer’s Payment of Fees

Takeaway: An employee may be allowed to withdraw from arbitration if the worker never agreed to an extension of time for an employer to pay required arbitration fees and the employer’s fees were not paid by the original due date. 

An arbitrator could not unilaterally extend the due date for an employer’s payment of required arbitration fees, a California appeals court ruled.

On Nov. 25, 2020, the employee filed a complaint against his former employer, alleging violations of the California Fair Employment and Housing Act (FEHA), among other claims. The employer moved to compel arbitration according to the parties’ arbitration agreement. On April 1, 2021, the trial court granted the motion and stayed court proceedings pending binding arbitration.

On Aug. 3, 2021, arbitration commenced via Judicial Arbitration and Mediation Services (JAMS). An arbitrator was appointed on Aug. 16, 2021. On July 29, 2022, JAMS sent an invoice to the employer for $32,300. On Aug. 29, 2022, JAMS sent another invoice for $11,760. Both invoices were due to be paid within 30 days of their respective due dates; both invoices provide that payment is “due upon receipt.”

On Sept. 30, 2022, JAMS sent a letter stating that all fees must be paid in full by Oct. 28, 2022, or the arbitration hearing was subject to cancellation.

Later that same day, on Sept. 30, 2022, the employee notified JAMS and the court that because the employer did not pay within 30 days of the due date, he was withdrawing his claims from arbitration and proceeding in court pursuant to Code of Civil Procedure Section 1281.98.

On Oct. 5, 2022, the employer confirmed via email to the employee that “all outstanding fees have been paid in full.”

On Oct 6, 2022, the employee filed a motion to lift the litigation stay pending arbitration, allowing the claims to return to court.

On Feb. 2, 2023, the trial court denied the motion. It deemed the employer’s payment timely based on the Sept. 30, 2022 letter providing a new due date of Oct. 28, 2022 for payment. The court held that “the arbitrator seemingly set a new due date of Oct. 28, 2022.”

The employee challenged in appellate court the trial court’s denial of his motion to lift the litigation stay pending arbitration.

The court first noted that, in 2019, the California Legislature enacted Section 1281.98 to curb a particular arbitration abuse. The abuse was that a defendant could force a case into arbitration but, once there, could refuse to pay the arbitration fees, thus effectively stalling the matter and stymying the plaintiff’s effort to obtain relief.

Section 1281.98(a)(2) provides that, in an arbitration that requires the employer to pay certain fees and costs during the pendency of a proceeding, if the fees or costs are not paid within 30 days after the due date, the employer is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee to proceed with that arbitration as a result of the material breach.

Subdivision (b) of Section 1281.98 provides employees with a choice of forum upon breach—they may elect to withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction or continue the arbitration proceeding if the provider agrees to continue.

Effective Jan. 1, 2022, the legislature amended Section 1281.98 to include a new sentence in subdivision (a)(2): “Any extension of time for the due date shall be agreed upon by all parties.”

The appellate court concluded that the trial court’s ruling was inconsistent with statutory mandate as well as recent appellate opinions.

First, the court said, the trial court’s ruling ignored the clear language of Section 1281.98 (a)(2), which expressly provides that “any extension of time for the due date shall be agreed upon by all parties.” Here, the court said, there is no evidence that the employee agreed to any extension.

Second, the court said, previous appellate decisions have held that the statute does not empower an arbitrator to cure a party’s missed payment. Any payment that exceeds the arbitration provider’s deadline and a statutorily granted 30-day grace period is a material breach of the arbitration agreement, allowing the employee to withdraw their claims from arbitration, the court said.  

Here, the employer’s arbitration fees were due to be paid within 30 days of the two invoices. Payment for the July 29, 2022, invoice was due Aug. 28, 2022, and payment for the Aug. 29, 2022, invoice was due Sept. 28, 2022. Section 1281.98 entitled the employee to withdraw from the arbitration, the court said. Section 1281.98 does not allow for any extension of time for the due date absent an agreement “by all parties.” JAMS’s Sept. 30, 2022, letter allowing payment until Oct. 28, 2022, in no way cured the employer’s missed payment and material breach, the court said.

The appeals court ruled that the trial court erred in ordering the parties to return to arbitration and that the employee was entitled to take his claims to court.

Hohenshelt v. Superior Court, Calif. Ct. App., No. B327524 (Feb. 27, 2024).

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.