There is no greater threat to an employment arbitration than Code of Civil Procedure section 1281.98, which mandates that the party who drafted the arbitration agreement pay the fees and costs of the arbitration within 30 days after the due date.  A failure to do so will result in a “material breach” of the arbitration agreement, which will entitle the non-drafting party (i.e., the employee) the right to withdraw from the arbitration and obtain onerous sanctions against the drafting party (i.e., employer). Employers have no room for error under this statute. 

 In every case prior to Trujillo v. J-M Manufacturing Company, Inc., however, California courts only applied the fee payment statute to pre-dispute arbitration agreements because such agreements are typically entered into between the employer and employee at the time of the employee’s hire, well before any dispute arises.  But the facts of Trujillo are anything but typical.  Although the employee signed a binding arbitration agreement at her time of hire, this agreement was not enforced by the employer.  Rather, after the employee filed suit, and the existing agreement was presented, the attorneys for the employee proposed “exploring a potential stipulation to arbitrate that would take the place of the claimed [arbitration] agreement” and “agree on the governing terms of any arbitration.”  The employee’s attorney took the laboring oar on the draft and even inserted language commensurate with the fee payment statute.  However, the final draft did not include this language following comments from the employer’s attorneys.  Once finalized, the stipulation was then entered into as an order of the trial court and the court action was stayed pending the arbitration results.  During the arbitration, the employer missed a fee payment deadline and the employee opted to withdraw under Code of Civil Procedure section 1281.98.  The trial court agreed that the employer lost its right to arbitrate based on the plethora of cases insisting on a strict interpretation of the statute.

 However, the Court of Appeal disagreed and ordered the case back to arbitration because of the definition of “drafting party” in the context of section 1281.98.  Code of Civil Procedure section 1280(e) defines the drafting party, for purposes of section 1281.98, as: “the company or business that included a predispute arbitration provision in a contract with a consumer or employee.”  The court pointed out that this definition could not apply based on the facts in Trujillo.  First, the voluntary stipulation to arbitrate was entered into after a dispute arose.  Although the employee did sign a pre-dispute arbitration agreement, it was not the operative agreement on which the parties proceeded to arbitration.  Second, the employer did not draft the agreement.  The facts unequivocally demonstrated that the employee’s attorney prepared the initial draft, and the employer’s attorney supplied revisions and comments to it.  After weeks of arms-length negotiations, the parties finalized the stipulation.  In sum, the agreement at issue in Trujillo was very different from the typical employer-required arbitration agreement that California has sought to protect against.

 Trujillo presents an unusual twist on well-tread ground.  Employers should not feel empowered by this case to skip fee payment deadlines.  Rather, Trujillo presents a limited reprieve for only the most unique circumstances.