Hohenshelt v. Golden State Foods Corp., 18 Cal. 5th 310 (2025)
In this closely watched case, the California Supreme Court held that California Code of Civil Procedure Section 1281.98 — a do-or-die statute requiring employers to pay arbitration fees within 30 days or “waive” the right to arbitrate altogether—is not preempted by the Federal Arbitration Act (“FAA”). While it is not the precise outcome employers may have hoped for, many correctly view the decision as a win, because in saving the statute from preemption, the Court effectively defanged it to foreclose its harshest consequences.
In close to a dozen published opinions, the California Court of Appeal had interpreted Section 1281.98 as imposing a strict, inflexible rule: Any late payment by an employer, regardless of the reason, resulted in an automatic forfeiture of the right to arbitrate. Citing various “generally applicable state law contract principles” against forfeiture, the California Supreme Court concluded the statute does not mean what it plainly says when it provides that an employer “waives its right to compel the employee . . . to proceed with that arbitration” if it fails to pay the arbitration fees within 30 days. Cal. Civ. Proc. Code § 1281.98(a)(1). Despite the absence of any support for a more charitable interpretation, the Court saved the statute from oblivion by concluding it is aimed only at deterring willful nonpayment of arbitration fees and therefore does not automatically strip employers of arbitration rights, provided the delay results from a good-faith mistake, inadvertence or other excusable neglect.
In a rare but spirited dissent, Justice Corrigan (joined by Justice Jenkins) argued that the Court’s interpretation is clearly at odds with the statute’s text and noted that even the majority’s interpretation runs afoul of the FAA’s equal-treatment principle by imposing unique and burdensome requirements on arbitration agreements — e.g., by effectively imposing a “time is of the essence” default presumption with respect to arbitration agreements but not any other type of contract. As Justice John Shepard Wiley Jr. sagely predicted in his dissent in the lower court: “By again putting arbitration on the chopping block, this statute invites a seventh reprimand from the Supreme Court of the United States.”