On November 25, 2020, Dana Hohenshelt filed a complaint against his former employer Golden State Foods Corp.. She alleged four causes of action: retaliation under the California Fair Employment and Housing Act (FEHA); failure to prevent retaliation under FEHA; violation of Labor Code section 226, subdivision (c), failure to timely provide copies of wage statements; and violation of Labor Code section 1198.5, subdivision (b), failure to timely provide copies of personnel records.

Golden State moved to compel arbitration according to the parties’ arbitration agreement. On April 1, 2021, the trial court granted the motion and stayed court proceedings pending binding arbitration.

On August 3, 2021, arbitration commenced via Judicial Arbitration and Mediation Services (JAMS). An arbitrator was appointed on August 16, 2021. Per the arbitrator’s fee schedule, “All fees are due and payable in advance of services rendered.” On July 29, 2022 JAMS sent an invoice to Golden State for $32,300. On August 29, 2022, JAMS sent another invoice for $11,760. Both invoices were due to be paid within 30 days of their respective due dates; both invoices provide that payment is “due upon receipt.”

On September 30, 2022, JAMS sent a letter stating: “Pursuant to our fee and cancellation policy, all fees must be paid in full by October 28, 2022, or your [arbitration] hearing may be subject to cancellation.”

Later that same day, on September 30, 2022, Hohenshelt notified JAMS and the court that because Golden State did not pay within 30 days of the due date, he was “unilaterally elect[ing]” to withdraw his claims from arbitration and to proceed in court pursuant to Code of Civil Procedure section 1281.98, subdivision (b)(1).

On October 5, 2022, Golden State confirmed via email to Hohenshelt that “all outstanding fees have been paid in full.” On October 6, 2022, Hohenshelt filed a motion to lift the litigation stay pending arbitration.

On February 2, 2023, the court denied the motion. It deemed Golden State’s payment timely based on the September 30, 2022 letter providing a new due date of October 28, 2022 for payment. The court held that “the arbitrator seemingly set a new due date of October 28, 2022.”

The Court of Appeal granted Hohenshelt’s petition for writ of mandate and directed the trial court to vacate its order denying the motion to lift the stay of litigation and to enter an order lifting the stay in the published case of Hohenshelt v. Superior Court -B327524 (February 2024).

“The trial court’s ruling was inconsistent with statutory mandate as well as recent appellate opinions. First, the trial court’s ruling ignored the clear language of Code of Civil Procedure.section 1281.98, subdivision (a)(2), which expressly provides that “[a]ny extension of time for the due date shall be agreed upon by all parties.” Here, there is no evidence that Hohenshelt agreed to any extension.

Secondly, the Second District Court of Appeal dealt with this exact same situation in Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073. As did their colleagues in Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621.

“The same logic applies in the case before us. Golden State’s arbitration fees were due to be paid within 30 days of the two invoices.” Payment was not paid on time. “Section 1281.98 entitled Hohenshelt to withdraw from the arbitration. Section 1281.98 does not allow for any extension of time for the due date absent an agreement ‘by all parties.’ “

Golden State argues for the first time via its supplemental brief that section 1281.98 is preempted by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) and that the Court of Appeal should uphold the trial court’s order to allow the parties to return to arbitration.

“The question of whether section 1281.98, as well as sections 1281.97 and 1281.99, are preempted by the FAA was addressed and answered in Gallo and followed thereafter by other courts. (See Suarez v. Superior Court (2024) 99 Cal.App.5th 32, 41-42; Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 783-784; De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 753-754.)”

However, on this last point, Justice John Shepard Wiley Jr. wrote a dissenting opinion which began by noting “What preempts this statute is the decision to make arbitration the hostage of delay.”

“Delaying contract performance in bad faith is an odious tactic. Employers pursuing this tactic may deserve sanction. But sanctions like damages, a statutory fine of a motivating magnitude, and attorney fees would amply deter delay. Why abolish the arbitration itself?”

“One answer is that California state law disagrees, strongly and persistently, with federal law about whether arbitration is desirable.”

“By again putting arbitration on the chopping block, this statute invites a seventh reprimand from the Supreme Court of the United States.”

“Recall the past six. Over and over again, with determined but unavailing persistence, the Supreme Court of the United States has rebuked California state law that continues to find new ways to disfavor arbitration.”

Late Payment Ends Employee Arbitration – Justice Wiley Dissents