Since the turn of the century, the judicial and legislative branches in California have added barrier after barrier to employers who have consciously sought arbitration; an oft-stated “preferred” method of resolution. The most draconian of these barriers became effective on January 1, 2020, with the enactment of Code of Civil Procedure § 1281.97 et seq.  These statutes provide that if an employer fails to timely pay the fees for the arbitration, the employee would be entitled to either withdraw the claim from the arbitration and proceed in court or otherwise compel arbitration, whereby the employer would then be required pay the employee’s reasonable attorney’s fees and costs related to the arbitration. On top of challenging jurisdiction, the employee could also be awarded monetary sanctions and the employer could be hit with an evidence sanction, terminating sanction, or even a judgment by default.  At least employers could take a measure of solace in the fact that only the arbitration initiation fees would be due at the inception of the arbitration, with the arbitration hearing fees becoming due at a later date, usually much closer to the actual hearing. Now that too is scheduled to change as a result of Senate Bill 762. 

SB 762, which becomes effective on January 1, 2022, amends Code of Civil Procedure § 1281.97 and § 1281.98 to require the arbitration provider to “immediately provide an invoice” for both the arbitration initiation fees and the arbitration hearing fees once the requirements necessary to initiate the arbitration have been met. Unless the arbitration agreement expressly provides the number of days to pay any required bees or costs, the employer would be required to pay the full invoice immediately and not later than 30 days after the invoice has been issued.

The ramifications are obvious. Most businesses will not want to pay the costs of the entire employment arbitration at the outset. This is because, unlike arbitrations between businesses in which each party contributes to the payment of the fees and costs equally, an employer is obligated to pay for the employee’s portion of the arbitration fees, except for the portion equivalent to the amount required to start a court proceeding. When shouldered by a single party, the costs of an entire arbitration can be quite significant and can include arbitrator fees of thousands of dollars for each day of the arbitration hearing. Before this law was passed, these employers could budget for the anticipated costs of a hearing that would take place months later.  Senate Bill 762 all but removes that option.  What was once intended as an “efficient and inexpensive method” for resolution is now limited to those select few who can afford to pay the price up front.

As noted above, there is one silver lining hidden in the text of the new bill.  Employers may provide a “reasonable” time for payment in an “express provision in the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs.”  By taking the affirmative step of specifying a time period, employers may be able to avoid a crippling upfront payment that would otherwise bar entry to arbitration. Employers are encouraged to seek advice from experienced employment attorneys who can carefully draft a code compliant arbitration agreement to overcome these legislative hurdles.

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