The California Supreme Court issued its decision, on August 11, 2025, in Hohenshelt v. Superior Court (Golden State Foods Corp.), S284498, addressing whether the Federal Arbitration Act (FAA) preempts California’s statutory provisions governing the timely payment of arbitration fees in employment and consumer disputes. In authoring the opinion of the Court, Justice Goodwin Liu provided important guidance regarding the consequences of late payment of arbitration fees and the availability of relief for non-willful nonpayment.
Below, we discuss the background of the case, details of the court’s decision, and key takeaways for employers and drafters of arbitration agreements.
Background
The dispute arose after an employer failed to timely pay arbitration fees during an ongoing employment arbitration, prompting the employee to seek withdrawal from arbitration and a return to court under Code of Civil Procedure section 1281.98. This provision, enacted as part of Senate Bill 707, establishes that if the drafting party (typically the employer or business) fails to pay required arbitration fees within 30 days of the due date, the drafting party is in material breach of the arbitration agreement and waives its right to compel arbitration. The employee or consumer may then elect to withdraw from arbitration and proceed in court or continue in arbitration if the provider agrees.
Lower courts were split regarding whether the FAA preempts this California rule, with at least one court finding that the extreme consequences for late payment of fees disfavored arbitration and therefore was preempted by the FAA, while other courts found that the payment procedures furthered the objectives of the FAA by promoting timely arbitration and therefore was not preempted by the FAA.
The California Supreme Court’s decision
The Hohenshelt court held that section 1281.98 is not preempted by the FAA, provided it is construed in harmony with longstanding California contract principles that allow relief from forfeiture in cases of good faith mistake, inadvertence, or excusable neglect. The court rejected a rigid interpretation of section 1281.98 that would automatically strip a party of its right to arbitrate for any late payment, regardless of the circumstances.
In its decision, the court made the following key points:
- FAA preemption: The court found that section 1281.98, as properly construed, does not “disfavor arbitration” or “interfere with fundamental attributes of arbitration” under the FAA. The statute’s default rules for timely payment are consistent with the FAA’s policy of enforcing arbitration agreements according to their terms and promoting efficient dispute resolution.
- Relief for non-willful nonpayment: The court clarified that section 1281.98 does not abrogate the equitable and statutory principles codified in Civil Code sections 3275 and 1511 and Code of Civil Procedure section 473(b). These provisions allow courts to relieve a party from forfeiture of contractual rights where nonperformance was not willful, grossly negligent, or fraudulent, and where the party acts in good faith and compensates the other party for any harm caused by the delay.
- Legislative intent: The court emphasized that the legislature’s primary concern in enacting section 1281.98 was to deter strategic or manipulative nonpayment of arbitration fees, not to penalize inadvertent or excusable delay. The legislative history did not indicate an intent to override existing avenues for relief from forfeiture.
- Contractual flexibility: Parties remain free to contract for different payment timelines or to agree to extensions, provided all parties consent. The statute’s default rules apply only in the absence of such agreement.
The court remanded the case to the trial court to determine whether the employer’s late payment was excusable under the applicable legal standards and whether the delay caused compensable harm to the employee.
Justice Joshua Groban, joined by Justice Kelli Evans, filed a concurring opinion. The concurrence highlighted an important issue not addressed by the majority, namely, whether the parties had agreed that the California Arbitration Act’s (CAA) procedural rules would govern their dispute. The majority did not address this question because the employer failed to raise it in the lower courts. Justice Groban explained that, under California law, the CAA’s procedural rules apply by default in California courts unless the parties expressly opt out. To have the FAA’s procedural rules apply instead, the parties must “expressly designate that any arbitration proceeding should move forward under the FAA’s procedural provisions rather than under state procedural law.” Concurring Opinion pp. 3–4 quoting Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 394. As a result, if the parties do not expressly opt out of the CAA, California courts will apply the CAA’s procedural rules, and the application of those rules is not subject to FAA preemption or the equal-treatment analysis. Justice Groban emphasized that, in many cases, the threshold issue of which procedural rules the parties agreed to apply will be determinative of any FAA preemption challenge.
Implications for employers and drafters of arbitration agreements
This decision provides important clarification for employers and businesses when drafting arbitration agreements.
First, the statutory default remains that required arbitration fees must be paid within 30 days of the due date, absent a different agreement. Failure to timely make payment may result in loss of the right to arbitrate and exposure to sanctions.
Second, employers may avoid forfeiture of arbitral rights if they can demonstrate that late payment resulted from a good faith mistake, inadvertence, or excusable neglect. However, even where relief from forfeiture is granted, courts may still order the breaching party to pay reasonable expenses, including attorney’s fees and costs, incurred by the employee or consumer as a result of the delay.
Third, parties are encouraged to consider expressly specifying payment timelines and procedures for extending those timelines in their arbitration agreements to avoid ambiguity and potential disputes.
Fourth, the parties should also consider specifying that FAA procedural rules apply, so that courts can simply enforce those terms. Otherwise, the concurrence leaves open the possibility that in such instances, trial courts will apply CAA procedural rules by default and FAA preemption analysis would not be necessary.
Accordingly, employers and other drafting parties are encouraged to review their arbitration agreements and internal procedures to ensure compliance with these clarified standards.
We will continue to monitor developments in arbitration law for businesses operating in California.
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