An employer’s failure to pay its share of arbitration fees waived its right to arbitration, a California appellate court recently held in a matter of first impression.
Onecimo Sierra Suarez sued Rudolph & Sletten (R&S) for alleged wage and hour violations. R&S moved to stay the court action and proceed to arbitration, as provided in the employment agreement Suarez has signed.
The trial court granted the motion.
Less than a month later, on Dec. 2, 2022, the arbitration provider, JAMS, Inc., issued an email invoice for the initial filing fee to Suarez and R&S marked “due upon receipt.” The total fee was $1,750, with $400 allocated to Suarez and $1,350 to R&S.
JAMS followed up a few weeks later to request a status of payment, but R&S did not pay its share of the invoice until Jan. 4, 2023.
Suarez then filed a motion to vacate the stay of his civil action. He argued that by failing to pay its share of the arbitration filing fee within 30 days as required by section 1281.97, R&S waived its right to arbitrate the dispute.
The trial court denied the motion and Suarez appealed.
Emphasizing that the state legislature aimed the statute at a very specific problem – the “procedural limbo and delay workers and consumers face when they submit to arbitration, pursuant to a mandatory arbitration agreement, but the employer fails or refuses to pay their share of the arbitration fees” – the appellate panel reversed.
R&S took the position that the 30-day time period was extended by two provisions of the statute: sections 12 and 1010.6(a)(3)(A).
Section 12 provides for an extension of certain deadlines that fall on a holiday. By R&S’s calculation, because 30 days from Dec. 2, 2022 was Jan. 1, 2023 – and because both January 1 and 2 were holidays – the grace period for payment was pushed until January 3.
The employer then tried to tack on an additional two days based on section 1010.6(a)(3)(A), which deals with the electronic service of documents. This statutory provision extended R&S’s deadline to Jan. 5, 2023, the company told the court, meaning R&S’s payment was timely.
Assuming without deciding that section 12 could potentially apply, the court found a “major problem” with the application of section 1010.6(a)(3)(A), as it “simply does not apply to the email transmission of a JAMS fee invoice.”
By its terms, the statute governs the service of documents in an action filed with the court. An arbitration proceeding is not an action filed with the court, and the invoice required by section 1281.97 was provided to the parties – not served, the court explained.
“That an arbitration proceeding is not a court action is axiomatic,” the court wrote. “Private arbitration exists as an alternative to resolving disputes in the public court system.”
Further, “service” is a legal term of art that does not apply to an invoice sent by an arbitration provider, which governs the economic relationship between the parties and is not a document filed with the court or by the arbitrator.
As a fallback argument, R&S told the court that because Suarez did not pay his portion of the initial arbitration fees, he never properly initiated an arbitration under section 1281.97.
But the focus of the statute is on employers, not employees, the court said, and the plain language does not say anything about Suarez’s payment or create penalties for employees who do not pay their share of the arbitration fees.
“In the matter before us, R&S wanted to compel the resolution of Suarez’s dispute in arbitration,” the court wrote. “It sought to accomplish this by removing the dispute from the public court system and transferring it to the arbitral forum. When it failed to pay its share of the arbitration fees before the expiration of the grace period, it created the exact problem the Legislature sought to avoid when it enacted sections 1281.97 and 1281.98. Now faced with the consequences of its tardiness, R&S improperly attempts to shift the burden back to its employee, giving rise to further ‘procedural limbo and delay.’”
The court reversed the trial court’s order granting R&S’s motion to compel compliance with the existing arbitration order and directed it to enter a new order granting Suarez’s motion.
To read the opinion in Suarez v. Superior Court, click here.
Why it matters
As the appellate panel summarized for California employers, “[t]he overriding moral of this story may be to pay your bills on time.” By failing to timely pay its arbitration fee, the employer lost its ability to arbitrate the dispute and now faces state court litigation.