![The Battle for Supremacy: Federal Arbitration Act v. California Arbitration Act | By: Jared W. Slater](assets/images-t1724967491/876.jpeg)
Since its enactment, California courts have universally established the California Code of Civil Procedure section 1281.97 et seq., which governs the timely payment of fees in arbitration, allows no room for error. Within the last two months, the California Court of Appeals issued two competing decisions addressing whether the Federal Arbitration Act (“FAA”) preempts the California Arbitration Act (“CAA”), and by extension the statutory fee payment deadline set forth in section 1281.97.
In this corner, fighting for federal preemption, is Hernandez v. Sohnen Enterprises, Inc. Issued by the California Court of Appeal, Second District, the Hernandez opinion examines an arbitration agreement that was governed by the FAA and which provided that “the parties could conduct discovery and bring motions under the Federal Rules of Civil Procedure except as specifically provided otherwise in the agreement [and that] [t]he parties waived class or representative actions “to the fullest extent permitted by the FAA.” The arbitration agreement made no mention of the CAA. Subsequently, the employer failed to timely pay the arbitration fees within the 30-day safe harbor period provided for by California Code Section 1281.87. The trial court followed the draconian rule of the CAA and found that the employer had breached its duty to timely pay the fees under California law and that the plaintiff was therefore not required to arbitrate the dispute.
The Court of Appeals reversed the trial court’s decision. In so doing, it found that the “arbitration agreement in this case is governed by the FAA, including both substantive and procedural provisions of the FAA, rather than California’s laws. As a result, the procedures of section 1281.97 do not apply.” But the court did not stop there. It continued: “[e]ven if we were to conclude that section 1281.97 applies, however, we would still reverse, because when an agreement falls within the scope of the FAA and does not expressly adopt California arbitration laws, the FAA preempts the provisions of section 1281.97 that mandate findings of breach and waiver.”
And in the other corner we have Keeton v. Tesla, Inc., making the case for state supremacy, as held by the California Court of Appeal, First District. In Keeton, the court determined that there are three situations in which state law is preempted by federal law: (1) “express preemption,” where Congress explicitly defines the extent to which its enactments preempt state law; (2) “field preemption,” where state law attempts to regulate conduct in a field that Congress intended the federal law exclusively to occupy; and (3) “conflict preemption,” where it is impossible to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purpose and objectives of Congress.
With this foundation, the court followed the well-tread ground of its predecessors; that section 1281.97 et seq. is not preempted by the FAA and the timeliness of the arbitration payment had to be made within 30 days of the deadline provided on the arbitrator’s invoice. In considering the three circumstances in which federal preemption might apply, it concluded that the first two situations were wholly inapplicable: “The FAA contains no express pre-emptive provision, nor does it reflect a congressional intend to occupy the entire field of arbitration.” The First District then turned to the question of “conflict preemption”. It found that the FAA’s “principal purpose” was to ensure that “private arbitration agreements are enforced according to their terms” and that there was “no federal policy favoring arbitration under a certain set of procedural rules.” Thus, there was no conflict between the CAA and FAA to justify federal preemption.
Keeton, coming almost exactly one month after Hernandez, briefly addressed the latter case in a footnote. In the footnote, the Keeton opinion disagreed with, and distinguished the opinion in Hernandez because the arbitration agreement in the latter case explicitly provided for the procedural rules under the FAA, whereas the arbitration agreement in Keeton did not.
The Hernandez decision is a welcome sign for California employers, as it offers a reprieve from California’s suffocating arbitration fee payment statute. Even so, it is clear from Keeton that the interpretation of the law is currently unsettled. Employers and employees alike can expect to see the question ultimately presented to the California Supreme Court. We will have to wait and see if a knockout comes in the third, and perhaps final, round of this bout.
- Counsel
Jared W. Slater is a Counsel in ECJ's Litigation and Employment Departments.
Jared's practice focuses on defending labor and employment actions, including claims for wage and hour violations, harassment, and discrimination both ...
Subscribe
Recent Posts
- Severing Unconscionable Terms in Employment Arbitration Agreements | By: Jared W. Slater
- Can You Collaterally Attack a Receiver’s Appointment?
- Overbroad Employment Arbitration Agreements Will Not Be Enforced in California | By: Jared W. Slater
- LA Al Fresco Deadline Extended | By: Pooja S. Nair
- The Battle for Supremacy: Federal Arbitration Act v. California Arbitration Act | By: Jared W. Slater
- Another Blow to E-Signed Arbitration Agreements in California By: Jared W. Slater
- Employer Reminder: Local Minimum Wage Increases on July 1, 2024 and Current Mileage Rates | By: Kelly O. Scott
- Governor Signs Law Exempting Restaurants From New Hidden Fees Law | By: Cate A. Veeneman
- Workplace Violence Prevention Plans and Trainings Must be Implemented by July 1 | By: Jared Slater
- Department of Labor Revises Independent Contractor Test | By: Pooja S. Nair
Blogs
Contributors
Archives
- August 2024
- July 2024
- June 2024
- May 2024
- April 2024
- March 2024
- February 2024
- January 2024
- December 2023
- November 2023
- October 2023
- September 2023
- August 2023
- July 2023
- June 2023
- May 2023
- April 2023
- March 2023
- February 2023
- January 2023
- December 2022
- November 2022
- October 2022
- September 2022
- August 2022
- July 2022
- June 2022
- May 2022
- April 2022
- March 2022
- February 2022
- January 2022
- December 2021
- November 2021
- October 2021
- September 2021
- August 2021
- July 2021
- June 2021
- May 2021
- April 2021
- March 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- June 2019
- May 2019
- March 2019
- February 2019
- January 2019
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014