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

Category: Public Agencies
Date: Oct 31, 2019 12:27 PM

For any public agencies that require 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 to Proceed in Court

Pursuant to SB 707, in an employment arbitration in which the employer 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 employer is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration.   As a result, if the employer materially breaches the arbitration agreement and is in default of the arbitration, the employee may either withdraw the claim from arbitration and proceed to bring the claim in court or compel arbitration.

In all cases in which the employee proceeds in court based on the employer’s failure to timely pay arbitration fees and costs, the statute of limitations period with regard to all claims brought 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 Being Liable for Employee’s Attorney’s Fees and Costs and May Result in Evidentiary or Terminating Sanctions

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

If the employee proceeds with an action in a court of appropriate jurisdiction, SB 707 requires the court to impose a monetary sanction on the employer who materially breaches an arbitration agreement, and authorizes the court to impose other sanctions, including the following: 

(1)  An evidence sanction by an order prohibiting the employer 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 employer.

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

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

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

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

(SB 707 amends Sections 1280 and 1281.96 of and adds Sections 1281.97, 1281.98, and 1281.99 to the Code of Civil Procedure.)

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