After years of appellate cases and several rulings holding California employers to the very strict payment standards of the California Arbitration Act (CAA), the California Supreme Court has, for the first time, addressed whether provisions of the CAA are preempted by the Federal Arbitration Act (FAA). In Hohenshelt v. Superior Court of Los Angeles County, the Court ultimately held that Code of Civil Procedure § 1281.98 remains valid and enforceable. Nevertheless, the decision represents a meaningful victory for employers because the Court rejected a rigid application of the fee payment statute. In particular, the Court recognized the applicability of equitable defenses under California contract law, thereby tempering the statute’s harsh consequences for inadvertently missed fee payments.
The case arose after a former employee of Golden State Foods Corp. brought claims of workplace retaliation and harassment. Bound by an arbitration agreement governed by the FAA, he was compelled to arbitrate his claims. Golden State initially complied with the arbitration procedures but, after participating in the arbitral process for approximately a year, failed to pay a required invoice within the 30-day period mandated by § 1281.98(a)(1). In response, the employee moved to withdraw from arbitration and proceed in court, asserting his statutory right based on the employer’s breach.
The trial court denied the employee’s motion to withdraw, accepting the employer’s argument that the arbitrator had effectively extended the deadline by issuing an amended invoice with a later due date – one the company met. The Court of Appeal reversed, holding that the statutory deadline is triggered by the original invoice and that it cannot be unilaterally extended by the arbitrator. Consistent with several other appellate decisions over the last few years, the Court of Appeal further concluded that the statute is not preempted by the FAA. The employer then appealed to the California Supreme Court, focusing its arguments primarily on federal preemption.
The high court largely agreed with the appellate court’s reasoning. In interpreting § 1281.98, the Court closely examined the statute’s legislative history. Enacted in 2019 as part of Senate Bill 707, the statute was a legislative response to concerns that some employers were undermining arbitration by compelling employees into the process but then failing to pay the requisite fees – thereby denying access to a forum and stalling any resolution.
According to the legislative record, § 1281.98 was designed to deter such procedural gamesmanship and to ensure arbitration remains a fair and efficient alternative to litigation. The statute sets forth a clear consequence: if the drafting party fails to pay arbitration fees within 30 days of the due date, that failure constitutes a material breach, entitling the non-drafting party to withdraw from arbitration and resume proceedings in court. Importantly, the Court’s opinion in Hohenshelt emphasized that lawmakers deliberately rejected proposals that would have made the deadline discretionary or dependent on arbitrator discretion. The intent was to create a firm, enforceable obligation with real consequences for noncompliance.
The Court then rejected Golden State’s fundamental argument that § 1281.98 is preempted by the FAA, concluding that the statute does not undermine the FAA’s objectives. Rather than disfavoring arbitration, § 1281.98 promotes its proper functioning by holding parties accountable for their procedural obligations. Because the statute supports timely resolution and equitable access to arbitration, it does not conflict with the FAA and is therefore not preempted.
However, the Court did not interpret the statute as an inflexible rule precluding all relief for missed deadlines. Instead, it held that § 1281.98 must be read in harmony with established California contract law. Longstanding equitable doctrines – such as relief from forfeiture under Civil Code § 3275, excusable neglect under Code of Civil Procedure § 473(b), and defenses based on impossibility or impracticability under Civil Code § 1511 – remain available in appropriate circumstances. Thus, where a party can demonstrate that its delay in payment was non-willful, made in good faith, and resulted in no material harm to the opposing party, courts may excuse the default.
In light of these principles, the California Supreme Court declined to adopt the Court of Appeal’s directive to lift the stay of litigation. Instead, it remanded the matter to the trial court to assess whether Golden State’s delay was excusable and whether the employee suffered any prejudice as a result. More pointedly, the Supreme Court disapproved of the line of cases over recent years that had held the statute provides a bright-line rule that prohibits exceptions based on excusable neglect, mistake, or inadvertence.
The decision in Hohenshelt ultimately reinforces the legislature’s goal of preventing abuse of the arbitration process while maintaining flexibility where equity so requires. By confirming the enforceability of § 1281.98 and preserving judicial discretion to grant relief in limited cases, the Court affirmed a balanced framework in which arbitration remains a meaningful, accessible, and accountable forum for dispute resolution.
