SB 707 – Sets Forth Sanctions For The Failure Of An Employer Or Company To Timely Pay Arbitration Costs

Category: Private Education
Date: Nov 11, 2019 11:07 AM

For any employer that requires employees to enter into arbitration agreements, SB 707 establishes requirements for employers to pay arbitrations costs in a timely fashion or else face possible sanctions, including a waiver of the right to compel arbitration, liability for an employee’s attorney’s fees, and even possible evidentiary or termination sanctions.

SB 707 affirms previous state and federal court decisions relating to employment or consumer arbitration agreements where an employer or company fails to pay arbitration fees and sets forth penalties for failing to do so.  As applied to employment arbitration agreements, the following penalties apply:

1. Failure to Timely Pay Arbitration Fees and Costs will Result in a Waiver of the Right to Compel Arbitration and Permits the Employee/Consumer to Proceed in Court at His/Her Option

Pursuant to SB 707, in an employment or consumer arbitration in which the drafting party is required to pay certain fees and costs associated with arbitration, if the fees or costs are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration.  The “drafting party” for purposes of SB 707 means “the company or business that included a pre-dispute arbitration provision in a contract with a consumer or employee.  The term includes any third party relying upon, or otherwise subject to the arbitration provision, other than the employee or consumer.”  SB 707 further provides that if the drafting party materially breaches the arbitration agreement and is in default of the arbitration, the employee or consumer may either withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction, or compel arbitration.  

Further, AB 707 provides that if the drafting party fails to pay required arbitration fees and costs that are due during the pendency of the arbitration within 30 days of the due date, the employee or consumer may unilaterally withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction, or to compel arbitration, at the employee or consumer’s option.

In all cases in which the employee/consumer proceeds in court based on the drafting party’s failure to timely pay arbitration fees and costs, the statute of limitations period with regard to all claims brought or that relate back to any claim brought in arbitration are tolled as of the date of the first filing of a claim in any court, arbitration forum, or other dispute resolution forum.

2. Failure to Timely Pay Arbitration Fees and Costs will Result in the Employer/Company Being Liable for Employee’s/Consumer’s Attorney’s Fees and Costs and May Result in Evidentiary or Terminating Sanctions

If the employee or consumer elects to compel arbitration after the drafting party materially breaches the arbitration agreement and is in default, as set forth above, SB 707 requires the drafting party to pay reasonable attorney’s fees and costs related to the arbitration and to impose other sanctions. 

If the employee or consumer proceeds with an action in a court of appropriate jurisdiction, SB 707 requires the court to impose a monetary sanction on the drafting party who materially breaches an arbitration agreement, and authorizes the court to impose other sanctions.

A court is further authorized by SB 707 to impose other sanctions on a drafting party for failure to timely pay arbitration fees and costs unless it finds that that the drafting party “acted with substantial justification or that other circumstances make the imposition of the sanction unjust.”  These other sanctions include the following: 

(1)  An evidence sanction by an order prohibiting the drafting party from conducting discovery in the civil action; or

(2)  A terminating sanction by one of the following orders:

(A)  An order striking out the pleadings or parts of the pleadings of the drafting party.

(B)  An order rendering a judgment by default against the drafting party.

(3)  A contempt sanction by an order treating the drafting party as in contempt of court.

(4)  Attorneys’ fees and costs associated with the abandoned arbitration proceedings.

In addition to the above, SB 707 requires private arbitration companies to collect and report demographic data in the aggregate relative to ethnicity, race, disability, veteran status, gender, gender identity, and sexual orientation of all arbitrators, as specified.

Schools need to be cognizant that any failure to pay arbitration fees and costs in an employment arbitration or consumer arbitration could have a significant adverse impact on the continuation and cost of such proceedings as noted above.

(AB 707 amends Sections 1280 and 1281.96 of, and add Sections 1281.97, 1281.98, and 1281.99 to, the Code of Civil Procedure, relating to arbitration.)

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