California Supreme Court Takes a Bite Out of the Rigid Application of Arbitration Fee Deadlines: Hohenshelt v. Superior Court

Case Background

A sanitation employee at Golden State Foods Corporation, signed an arbitration agreement governed by the Federal Arbitration Act (FAA) at the start of his employment. In 2020, after reporting alleged workplace sexual harassment, he was terminated and sued for retaliation, wrongful termination, and Labor Code violations.

The trial court compelled arbitration before JAMS. After an initial deposit, JAMS issued two final-hearing invoices totaling $44,000 in July and August 2022, payable “upon receipt.” The employer did not pay within 30 days. The employee moved to withdraw from arbitration under § 1281.98. The employer paid shortly thereafter, citing the arbitrator’s unavailability and counsel’s paternity leave.

The trial court sided with the employer, but the Court of Appeal reversed, finding the payments untimely and forfeiture of arbitration mandatory. The California Supreme Court granted review to decide whether § 1281.98 is preempted by the FAA.

Key Takeaways from the Decision

In Hohenshelt v. Superior Court (No. S284498, Aug. 11, 2025) (“Hohenshelt”), the California Supreme Court addressed whether California Code of Civil Procedure § 1281.98 – requiring the drafting party in employment and consumer arbitrations to pay arbitration invoices within 30 days or risk forfeiture – is preempted by the FAA. The Court held “section 1281.98, properly construed, is not preempted by the FAA” but also rejected “the rigid construction” adopted by several Courts of Appeal, which had treated any late payment as a nearly automatic loss of arbitral rights. Instead, the Court concluded § 1281.98 must be read “against the backdrop of longstanding statutes that authorize courts to prevent unjust forfeitures of contractual rights,” including Civil Code §§ 3275, 1511, and Code of Civil Procedure § 473(b), preserving general equitable defenses, which previously had been ignored.

FAA Preemption Rejected

The Court found no conflict with the FAA’s “equal-treatment principle,” explaining the statute “does not ‘disfavor[] arbitration’ or ‘interfere[] with fundamental attributes of arbitration,’” but instead “aims to ensure that arbitration fees are paid in a timely manner so that parties to an arbitration agreement can move forward in arbitration.”

Equitable Doctrines Apply to Late Payments

Crucially for employers, the Court held that § 1281.98 was not intended “to strip companies and employers of their contractual right to arbitration where nonpayment of fees results from a good faith mistake, inadvertence, or other excusable neglect.” The Court rejected a rigid interpretation of § 1281.98 that would automatically penalize any late payment. Instead, it concluded the legislature enacted § 1281.98 against the backdrop of existing equitable principles. Rather, relief may be available under:

• Civil Code § 3275 (relief where breach is not willful, fraudulent, or grossly negligent);
• Civil Code § 1511 (excuses for delay in performance); and
• Code of Civil Procedure § 473(b) (relief for mistake, inadvertence, surprise, or excusable neglect).

As the Court emphasized, “when it appears that [the party] has acted in good faith, given some reasonable excuse for the delay, and thereafter tendered performance promptly and with reasonable diligence, equity can excuse nonperformance so long as the breaching party can and does adequately compensate the nonbreaching party.”

Employers now have the opportunity to demonstrate any delay in payment was non-willful, excusable, and did not result in prejudice to the employee. This restores judicial discretion and protects arbitration rights from being forfeited due to minor administrative errors or good-faith mistakes.

What’s Next for Employers?

Parties can contractually extend the deadline to pay administrator fees under California law.¹ Section 1281.98(a)(2) addresses express provisions in an “arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs…”, which overrides the presumptive 30-day default deadline. See Hohenshelt at 32 (“But parties are free to contract for any due date they want by adopting their own “provision the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs.”) 

Some unresolved issues remain, however. For example, it is uncertain whether parties can contract around § 1281.98 by expressly adopting FAA-governed rules. The Court left this question open and did not address in the ruling.

Employers can take note of the following in light of this decision: 

• Updating Agreements: Subject to the last bullet point about the AAA, employers should consider updating current agreements to include more time for employers to pay required fees or costs.
• Compliance Imperative: Employers should continue to meet payment deadlines to avoid disputes – but Hohenshelt provides a defense when delays are demonstrably non-willful and non-prejudicial.
• National Implications: Other states considering similar laws, such as Rhode Island, may look to Hohenshelt as a model for balancing timely payment with equitable relief. Rhode Island’s 2024 amendments to its Arbitration Act (Title 10, Chapter 3) mirror California’s fee enforcement regime and has prompted similar debate about whether they are preempted by the FAA.
• Conflict with AAA Rule R-56: The Court’s interpretation of § 1281.98 now stands in direct tension with AAA Employment/Workplace Rule R-56² (which is part of the new AAA Employment/Workforce Rules amended and implemented on May 1, 2025) and provides failure to pay fees “shall result in a waiver of the right to arbitrate” without regard to intent or prejudice. It is uncertain whether California courts will enforce Rule R-56’s automatic waiver provision in light of Hohenshelt. While § 1281.98 was previously seen as more punitive, AAA Rule R-56 may now be more draconian than California law. 

Conclusion

The Hohenshelt decision continues to show the California Supreme Court’s persistence in rejecting FAA preemption, but provides a balanced approach protecting the integrity of arbitration agreements while allowing courts to apply fairness in fee-related disputes. Employers can take proactive steps to demonstrate compliance and preserve their ability to arbitrate employment claims. Employers now have the opportunity to demonstrate any delay in payment was non-willful, excusable, and did not result in prejudice to the employee. This restores judicial discretion and protects arbitration rights from being forfeited due to minor administrative errors or good-faith mistakes.

Littler’s Arbitration Practice Group will be holding a complimentary webinar on August 28, 2025 to address this ruling, as well as other trending topics in arbitration.  Click here for more information.