In Hohenshelt v. Superior Court (Aug. 11, 2025), the California Supreme Court resolved whether California’s arbitration fee payment statute (Code of Civil Procedure §1281.98) is preempted by the Federal Arbitration Act (FAA). 

Section 1281.98 requires the party that drafted an arbitration agreement – typically the employer in employment disputes – to pay required arbitration fees within 30 days of the due date. If payment is late, the drafting party is deemed in “material breach,” waives the right to arbitrate, and the employee may choose to proceed in court. 

The Court held that the statute is not preempted by the FAA. However, it rejected the rigid interpretation used by some lower courts, including the Court of Appeal in this case, that any late payment – no matter the reason – automatically forfeits arbitration rights. Instead, the Court harmonized § 1281.98 with longstanding California contract principles, allowing relief from forfeiture when late payment results from good faith mistake, inadvertence, or excusable neglect, rather than willful, grossly negligent, or fraudulent conduct. The court reversed the Court of Appeal’s order lifting the stay of litigation and remanded for the trial court to determine whether the employer’s late payment was excusable and whether the employee suffered compensable harm. 

The decision emphasizes that the Legislature’s purpose was to deter strategic nonpayment by employers seeking to stall proceedings, not to punish harmless errors. Still, the Court cautioned that employers must be able to fully compensate the other party for any delay and meet the narrow legal standards for excusing late performance. 

Key Takeaways for Employers 

• Pay arbitration invoices promptly. Even with the Court’s flexible reading, timely payment is the safest way to preserve the right to arbitrate. 

• No unilateral extensions. Fee deadlines are “due upon receipt” unless all parties agree otherwise in writing. 

• Relief from forfeiture is limited. Employers must show that any delay was not willful, grossly negligent, or fraudulent– and be prepared to compensate the employee for resulting costs. 

• Avoid procedural limbo. The law was designed to prevent intentional stalling of arbitration; a pattern of late payments could still result in loss of arbitral rights. 

Bottom line: To ensure enforceability of arbitration agreements, employers should implement procedures to track and pay arbitration invoices immediately upon receipt, avoiding the risk of losing arbitration as a forum altogether.