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Failure to Pay Arbitration Fees On Time Could Have Drastic Consequences for Employers

Attorney: Mary Watson Fisher | Published 11.3.22

A recent California appellate court decision held that an employer who misses the deadline to pay an arbitrator’s filing fee may not only lose the right to arbitrate the case, but may lose the case altogether.

In Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, plaintiff Sunny Gallo (“Gallo”) sued her employer, Wood Ranch USA, Inc. (“Wood Ranch”) in Los Angeles Superior Court, for discrimination and retaliation. Wood Ranch successfully moved to compel Gallo to litigate her claims in arbitration. Under the terms of the parties’ arbitration agreement, the arbitration was to be conducted pursuant to the California Arbitration Act. The parties selected an arbitrator affiliated with the American Arbitration Association (“AAA”). Thereafter, AAA sent invoices to both parties for payment of their respective shares of the initial filing fee. Gallo paid her portion of the fee before the November 4, 2020 deadline. However, Wood Ranch failed to timely pay its portion. Consequently, AAA notified the parties that Wood Ranch had until December 4, 2020 to pay the fee, otherwise, AAA would close its file on the matter. AAA sent the notices to a partner at the law firm representing Wood Ranch. However, for reasons unknown, the partner never forwarded them to the associate attorney who was handling the case on a day-to-day basis, or to the assigned legal secretary at the firm. Wood Ranch missed the December 4 deadline. Four days later, the associate handling the case for Wood Ranch contacted the AAA about the missed deadline, and Wood Ranch ultimately paid the $1,900 fee on December 10.

Six days later, Gallo filed a motion with the court to vacate the order compelling arbitration, arguing that Wood Ranch breached the arbitration agreement when it failed to timely pay the initial filing fee. The trial court granted her motion, and ordered Wood Ranch to pay $2,310 in monetary sanctions. Wood Ranch appealed, but the appellate court agreed with the trial court’s order. In doing so, the appellate court ruled that under the California Arbitration Act, if the fees to initiate an arbitration proceeding are not paid within 30 days after their due date, the employer waives its right to compel arbitration. In that case, the employee may either elect to proceed with her claim in court, or compel the employer to arbitration. Further, the law states that a court shall award sanctions against the employer in the amount of the employee’s reasonable attorney’s fees and costs incurred as a result of the employer’s breach. The appellate court also noted that while the trial court did not impose any further sanctions against Wood Ranch, it had the authority to do so under California law. Those potential sanctions included an evidentiary sanction (limiting the employer’s ability to conduct discovery in the case), a terminating sanction (striking the employer’s answer or entering its default), or a contempt order.

The lesson from the Gallo case is simple: Employers must timely pay arbitration fees. Their failure to do so can not only result in their waiving the right to arbitrate the case; it could cause them to lose the case entirely.