In our previous article, “Pay Up or Lawsuit Up: The 30-Day Countdown That’s Fueling Arbitration Disputes,” we explored the legal and practical challenges posed by California’s 30-day arbitration fee payment rule, codified in SB 707. That piece detailed how the rule has become a flashpoint in mass arbitration and privacy claims, with businesses facing the risk of losing their right to arbitrate—and incurring significant sanctions—if they fail to pay arbitration fees within a tight, rigid deadline.

The California Supreme Court’s recent oral argument in Hohenshelt v. Superior Court now brings these issues to the forefront, with the potential to reshape the arbitration landscape in California.

Arguments and Issues at Stake

At oral argument, the employer and business community, supported by the Chamber of Commerce, pressed the point that SB 707 unfairly singles out arbitration agreements for uniquely harsh treatment. They argued that the statute imposes automatic and inflexible penalties for even minor or excusable delays in fee payment, in violation of the Federal Arbitration Act’s (“FAA”) “equal-treatment principle.” This principle prohibits states from placing special burdens on arbitration agreements that do not apply to other contracts. Counsel for Golden State Foods, the employer in the case, emphasized the draconian nature of SB 707, noting that even extraordinary circumstances—such as an earthquake—would not excuse a late payment under the statute as written. Unlike general contract law, where courts can weigh the facts to determine whether a missed deadline constitutes a material breach, the employer argued that SB 707 removes any ability for judicial discretion or flexibility, making breach and waiver automatic and absolute regardless of the circumstances, equities, or the impact of the breach.

The Chamber of Commerce echoed these concerns, arguing that SB 707 was designed to make arbitration a less attractive option by imposing risks and costs not found in other contractual contexts. They contended that the statute’s rigidity could discourage the use of arbitration altogether, undermining the FAA’s pro-arbitration policy.

On the other side, employee and consumer advocates, supported by the California Attorney General, defended SB 707 as a necessary response to documented abuses—specifically, businesses stalling or blocking arbitration by delaying fee payments in bad faith. They contended that the law ensures timely access to arbitration and is consistent with the FAA’s goals of fair and efficient dispute resolution. The Attorney General’s office argued that SB 707 was a reasonable legislative response designed to prevent companies from misusing arbitration agreements to block individuals from vindicating their rights. They also asserted that courts could apply equitable doctrines, such as excusable neglect, to avoid unduly harsh results, even if the statute does not expressly provide for such flexibility.

Key Themes from the Justices

The justices’ questions centered on whether SB 707’s automatic penalties could be harmonized with general contract and equitable principles. Several justices probed the statute’s rigidity, asking whether courts could interpret the law to allow for flexibility in cases of inadvertent delay, excusable neglect, or force majeure. Justice Goodwin Liu, for example, asked whether the statute would allow for exceptions in the event of an earthquake, and was told by counsel for the employer that the statute as written would not. This exchange underscored the concern that SB 707’s strictness may be inconsistent with both general contract law and the FAA’s equal treatment principle.

The Court also examined whether SB 707 truly targets arbitration unfairly, or whether it addresses a unique problem in a reasonable way. The justices appeared interested in whether the law could be interpreted to allow for judicial discretion, or whether its strictness rendered it inconsistent with the FAA’s mandate of equal treatment for arbitration agreements.

What’s Next

The California Supreme Court’s decision—which may come as soon as August—will have significant implications for businesses and individuals alike. If the Court upholds the rule in its current form, businesses could face strict deadlines for arbitration fee payments, with little room for error, even in extraordinary circumstances. This would reinforce the risks and settlement pressures we described in our earlier article. If the Court finds the law preempted by the FAA or interprets it more flexibly, the landscape for consumer and employment arbitrations in California could shift dramatically, potentially restoring some measure of judicial discretion and reducing the leverage that mass arbitration claimants currently wield.

For now, companies using arbitration agreements should closely monitor this case and review their internal processes for managing arbitration fee payments. The outcome may shape the risks and strategies for handling consumer and privacy claims in California for years to come.