California Supreme Court to Decide Key FAA Preemption Case on Arbitration Fee Compliance

Quick Hits

• The Supreme Court of California is poised to determine whether the Federal Arbitration Act preempts a state law requiring timely payment of arbitration fees, which could significantly affect employment arbitration practices.
• The case arises from a dispute where a former employee sought to void arbitration after the employer paid arbitration fees after a thirty-day deadline imposed by a California statute.
• The outcome will clarify the interplay between federal arbitration standards and California’s efforts to regulate employment arbitration agreements and arbitration processes.

The California high court heard oral arguments on May 21, 2025, in Hohenshelt v. Superior Court of Los Angeles County (Golden State Food Corp., Real Party in Interest), involving a labor arbitration thrown out after the employer failed to pay arbitration fees within a thirty-day deadline under the California Arbitration Act.

The case concerns the interaction between the FAA, which requires that arbitration agreements receive equal footing with other contracts, and 2019 amendments to the California Arbitration Act in Senate Bill (SB) 707 (codified at Code of Civil Procedure sections 1281.97 through 1281.99), which mandates that a party drafting an arbitration agreement must pay all required fees and costs within thirty days of the due date.

Background

Golden State Food Corp. compelled arbitration of a labor dispute with a former employee based on a mandatory arbitration agreement the former employee signed as part of onboarding documents in July 2018. The agreement stated that it is governed by the FAA. However, it did not expressly adopt either federal or California procedures and did not require the employer to pay the arbitrator on a predetermined schedule.

The former employee later tried to unilaterally withdraw the arbitration before the hearing date after the employer had paid more than $50,000 in arbitration costs, but did not pay an earlier invoice within thirty days. The former employee asked the trial court to lift its stay pending arbitration to pursue her claims in court. The trial court refused to lift a stay, ruling that the employer had complied with the payment due date set by the arbitrator.

However, in a split decision, the California Court of Appeal Second Appellate District reversed and directed the trial court to vacate its order and lift the stay on litigation. The appellate court found that Section 1281.98 mandates that any extension of time for fee payment must be agreed upon by all parties, which did not occur, and that the statute does not let an arbitrator cure a party’s missed payment.

The appellate court rejected the employer’s argument that the FAA preempts Section 1281.98. However, Justice John Shepard Wiley Jr. dissented, arguing that the FAA preempts the statute because it singles out arbitration agreements for disfavored treatment by making them unenforceable due to delayed payments. He emphasized that federal law does not let a state invalidate arbitration agreements in this manner.

The California supreme court granted a petition to review the case in June 2024.

FAA Preemption

The employer argued that the FAA preempts SB 707 since it does not treat arbitration agreements on the same plane as other contracts, requiring arbitrators to submit invoices for costs immediately and requiring businesses to pay those invoices immediately.

The employer argued that the law further creates harsh penalties for arbitration contracts that do not apply to other contracts, deeming businesses that fail to pay within the thirty-day deadline “in material breach of the arbitration agreement” and forcing them to waive their right to compel arbitration. The law is inflexible and fails to allow for equitable contract remedies or issues of breach and waiver to be analyzed on a case-by-case basis. Further, the employer argued that the statute “interfere[s] with the fundamental attributes of arbitration,” including by imposing stricter procedures than in judicial proceedings.

On the other hand, the former employee argued that SB 707 is meant to prevent businesses from delaying arbitration by delaying payment of fees, and thus “encourages” arbitration by ensuring that the process is not delayed. The former employee further argued that the FAA does not have an express preemption provision.

Other Cases

The appellate court holding in Hohenshelt contrasts with another California Second Appellate District decision in Hernandez v. Sohnen Enterprises Inc. from June 2025. In that case, the court upheld arbitration after a business failed to timely pay arbitration fees, finding that the FAA governed the arbitration agreement at issue and therefore, SB 707 did not apply. However, the appellate court said that if the state law were to apply, it would be preempted by the FAA.

Both cases come after the Ninth Circuit Court of Appeals in February 2023 in its decision in Chamber of Commerce of the United States of America v. Bonta held that the FAA preempted a 2020 California law, AB 51, that attempted to prohibit employers from requiring employees and job applicants to agree to arbitration as a condition of employment.

There, the Ninth Circuit found that AB 51 disfavored the formation of arbitration agreements and that potential civil and criminal sanctions placed a “severe” burden on this process.

Next Steps

The Hohenshelt case has been fully briefed and argued before the California supreme court. A decision should be forthcoming.

Ogletree Deakins’ Arbitration and Alternative Dispute Resolution Practice Group will continue to monitor developments. They will provide updates on the Arbitration and Alternative Dispute Resolution and California blogs as additional information becomes available.

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