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SB 707 passed into law this week and employers will need to check the calendar carefully or risk being fined or unable to enforce their binding arbitration agreements. Employers are responsible for paying certain fees unique to arbitration. SB 707 provides that an employer who, at the start of an arbitration, fails to pay certain initiation fees within 30 days after the due date, or fails to pay required fees and cost during the arbitration will: 1) be in material breach of the arbitration agreement, 2) be in default of the arbitration, and 3) waive its right to compel arbitration. In response, an employee otherwise subject to arbitration will have the following options: 1) withdraw from arbitration and proceed with his or her claims in an appropriate court, or 2) continue with the arbitration and require the employer to pay for reasonable attorneys’ fees and costs for the arbitration.  If the employee opts to proceed in court, rather than remain in arbitration, then the time spent in arbitration will not affect the statute of limitations on the employee’s underlying claims.  

Alternatively, the new law permits the employee to proceed with arbitration despite non-payment by the employer, so long as the arbitration company agrees to continue without payment of the fees, and empowers the arbitration company to bring a collection action later against the employer to recover those fees.  Or the employee can seek a court order requiring the employer to pay the fees to continue the arbitration, or the employee can pay the fees and recover them from the employer later, regardless of whether the employee prevails on his or her claims. The arbitrator will also have discretion to impose sanctions on the employer.

Finally, if the employee elects to abandon arbitration and proceed in court as a result of an employer’s failure to pay required fees and costs, the employer will face additional sanctions in the court proceeding.  The law directs courts to impose mandatory sanctions against the non-paying employer, including reasonable expenses, attorneys’ fees and costs incurred by the employee as a result of the employer’s breach of the arbitration agreement.  In addition, the court will have the discretion to impose one or more of the following sanctions: 1) preventing the employer from conducting any discovery, 2) striking out pleadings or parts of the employer’s pleadings, 3) rendering a judgment by default against the employer, or 4) holding the employer in contempt of court.

COUNSEL TO MANAGEMENT:

Employment arbitration agreements are essential tools for reducing the punishing impact of litigation on employers.  Employers who choose to put in place and enforce arbitration agreements must ensure that they do not delay the arbitration process by failing to timely pay fees.  Under this new law, the consequences for doing so can be severe.  If you have questions about your existing employment arbitration policy, or would like to have one created for your company, contact the employment law experts at the Saqui Law Group, a division of Dowling Aaron Incorporated.

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