The California Court of Appeal has indicated that provisions of the Federal Arbitration Act (FAA) may preempt California’s stricter requirements under Code of Civil Procedure section 1281.97. This section imposes severe penalties for the untimely payment of arbitration fees in employment and consumer arbitrations.
Key Points of Section 1281.97:
• Strict Penalties for Late Payment: If an employer fails to pay an Alternative Dispute Resolution (ADR) invoice within 30 days after issuance, it is considered a material breach of the arbitration agreement, effectively waiving the right to arbitrate.
• Consequences of Delay: Courts have interpreted that even slight delays in payment, or delays not caused by the employer’s fault, can empower employees to move to terminate the arbitration. Winning such a motion allows employees to claim attorneys’ fees and costs incurred during the arbitration period, which can amount to tens of thousands of dollars.
Key Points of the Decision:
• FAA Preemption: The FAA aims to promote arbitration as an expedited and cost-effective alternative to litigation. California’s requirement for employers to promptly pay arbitration fees, under section 1281.97, has been scrutinized for potentially conflicting with this goal by imposing harsh penalties for even minor delays in fee payment.
• Potential Consequences of Preemption: Should the FAA preempt section 1281.97, the stringent state-level penalties for late payment of arbitration fees could be overridden. This would mean a potentially less burdensome fee management process for employers but would require careful attention to both state and federal directives to avoid inadvertent violations.
Implications for Your Business:
• Review Required: It is crucial for businesses to reassess how they manage arbitration fees to ensure timely compliance and mitigate potential penalties.
• Strategic Adjustments: Understanding the dynamics between state mandates and FAA guidelines will be essential in safeguarding your arbitration agreements and practices.
• Contractual Review: Carefully review your arbitration agreements to determine if they specifically reference the FAA over state laws. If the agreements cite California Code of Civil Procedure, it’s possible that the FAA might not preempt, necessitating tailored compliance strategies.
How We Can Help: Our team is here to assist you in understanding the nuances of this decision and to help integrate these changes into your business practices. We can provide guidance on updating your arbitration agreements and offer strategic advice to manage any implications this ruling may have on your operations.
For further information or to schedule a consultation, please contact:
· Nicholas P. Roxborough: 📩 npr@rpnalaw.com
· Michael Adreani: 📩 mba@rpnalaw.com
· Trevor R. Witt: 📩 trw@rpnalaw.com
· Muhammed T. Hussain: 📩 mth@rpnalaw.com
· Phone: 📞 818-992-9999
We are committed to keeping you informed and compliant with the latest developments in employment law. Thank you for trusting us with your legal needs.
