Employer’s Failure to Pay Arbitration Fees Can Let Employees Take Their Case to Court

Many California employees are required to sign arbitration agreements as a condition of employment, often without fully understanding what arbitration means. Arbitration is a private legal process where disputes are resolved outside of court by a neutral third party, called an arbitrator, rather than a judge or jury. Unlike court cases, arbitration typically has limited discovery, fewer procedural protections, and no public record, which can sometimes favor employers.

However, a recent appellate court ruling in Colon-Perez v. Security Industry Specialists, Inc. highlights an important protection for employees: if an employer fails to pay required arbitration fees on time, the employee can withdraw from arbitration and take their case to court. In other words, the failure to pay arbitration fees may give California employees an advantage by allowing them to move their case to a more favorable venue.

Under California Code of Civil Procedure section 1281.98, if an employer fails to pay arbitration fees within 30 days, it is considered a material breach of the agreement—giving employees the right to move their case out of arbitration and back into a traditional courtroom setting. This ruling reinforces that employees are not trapped in arbitration if their employer does not uphold its obligations and ensures that companies cannot use arbitration as a tool to delay or avoid accountability.

In this blog, we’ll break down the case, explain why it matters for employees, and outline key takeaways for those considering a lawsuit against their employer.

Case Summary: Colon-Perez v. Security Industry Specialists, Inc.

Background of the Case (Failure to Pay Arbitration Fees)

• Plaintiff: Jenny-Ashley Colon-Perez
• Defendant: Security Industry Specialists, Inc. (SIS)
• Decision Date: January 29, 2025
• Key Issue: Whether an employer’s failure to pay arbitration fees on time allows an employee to take their claims to court.

Colon-Perez worked for SIS as a site supervisor and was terminated after three months of employment. She then sued SIS, alleging 18 causes of action, including:

• Gender discrimination
• Sexual orientation discrimination
• Marital status discrimination
• Disability discrimination
• Failure to accommodate a disability
• Harassment and hostile work environment
• Wrongful termination
• Labor Code violations

Employer’s Arbitration Agreement and Failure to Pay Fees

SIS successfully filed a motion to compel arbitration based on the arbitration agreement Colon-Perez signed at the outset of her employment with the Company.  The court agreed the arbitration agreement was enforceable, and ruled that Colon-Perez was required to resolve her claims through the private arbitration process, rather than in a lawsuit in court. However, under California law (Code of Civil Procedure § 1281.98), an employer that compels arbitration must pay all required arbitration fees on time to keep the case in arbitration.  Effectively, the employer has 30 days after the date of the arbitrator’s invoice, which is issued at the beginning of the case and periodically throughout the proceeding.

Initially, SIS complied with its payment obligations, paying some arbitration fees on schedule. However, the employer failed to pay a $4,000 invoice related to the arbitration within the required 30-day period. Under California law, this delay was not a minor issue—it was considered a “material breach” of the arbitration agreement, meaning Colon-Perez had the right to withdraw from arbitration and take her case back to court.

Recognizing this breach, Colon-Perez filed a motion to vacate the arbitration order, asking the trial court to allow her claims to proceed in a lawsuit in court instead of arbitration. The trial court granted her request, determining that SIS had violated California’s arbitration rules by failing to meet the required payment deadline.

In response, SIS attempted to challenge this ruling with several legal arguments, including:

1. The Federal Arbitration Act (FAA) should govern the arbitration process – SIS argued that the FAA, which generally favors arbitration, should override California’s law that allows employees to exit arbitration if employers fail to pay.
2. California law was preempted by federal law and unconstitutional – SIS claimed that Section 1281.98 conflicted with federal arbitration policies and should be struck down.
3. A late arbitration fee payment should not be considered a material breach – SIS contended that its delay in payment was minor and should not allow the plaintiff to withdraw from arbitration.

However, the California Court of Appeal rejected all of SIS’s arguments and upheld the trial court’s ruling. The appellate court affirmed three critical points:

• The FAA does not override California’s worker protections – California law still applies, ensuring that employers cannot force arbitration and then avoid paying for it.
• Employers must comply with arbitration rules, including payment deadlines – If they fail to pay on time, employees have the right to withdraw from arbitration and return to court.
• A failure to pay arbitration fees is automatically considered a material breach – Even a single missed or late payment gives employees the legal right to sue their employer in court.

What This Means for California Employees

This case is a significant win for employees because it prevents employers from using arbitration as a delaying tactic or a one-sided process that benefits them while limiting an employee’s ability to pursue justice.

Key takeaways for employees engaged in litigation against their employer:

1. Employers Must Pay Arbitration Fees on Time

• Under California Code of Civil Procedure § 1281.98, an employer has 30 days to pay arbitration fees after they are due.
• Failing to pay on time is a material breach of the arbitration agreement, and employees can then pursue their case in court instead.

2. Employees Have the Right to Withdraw from Arbitration

• If an employer misses the payment deadline, the employee can elect to withdraw from arbitration and proceed with their claims in court.
• This prevents employers from using delays and non-payment to avoid legal accountability.

3. Employers Cannot Use Federal Law to Escape California’s Protections

• The court ruled that California’s arbitration protections apply, even if the employer’s contract references the Federal Arbitration Act (FAA).
• The FAA does not override state laws designed to prevent employers from abusing the arbitration process.

4. Arbitration Agreements Are Not Always Enforceable

• Many employees feel trapped by arbitration agreements, but this case shows that employers must follow the rules too.
• If an employer violates the agreement, the employee may be able to litigate their case in court instead of arbitration.

5. If an Employer Breaches the Arbitration Agreement, Employees May Gain a Legal Advantage

• Arbitration is often seen as more favorable to employers due to private proceedings, limited discovery, and reduced damages.
• If an employer breaches its obligations (such as by failing to pay fees), the employee may have a stronger case in court, with better procedural protections.

6. Employees Should Seek Legal Advice Early

• If your employer fails to pay arbitration fees or delays the process, consult with an employment attorney immediately.
• A lawyer can help you assert your rights and move your case to court if your employer is stalling.

FAQs About Failure to Pay Arbitration Fees

What happens if my employer doesn’t pay arbitration fees on time?

Under California law (CCP § 1281.98), if your employer fails to pay arbitration fees within 30 days, you can withdraw from arbitration and take your case to court.

Can my employer argue that the Federal Arbitration Act (FAA) overrides California law?

No. California courts have repeatedly ruled that the FAA does not preempt California’s employee-friendly arbitration protections, including Section 1281.98.

Does withdrawing from arbitration mean I lose my case?

Withdrawing from arbitration simply means your case will be heard in court instead. In many cases, court litigation is actually more favorable to employees.

If my employer misses a payment deadline but later pays, do I still have the right to sue in court?

Yes. Even a late payment is considered a material breach under California law, meaning you can still choose to proceed in court.

Can I still win my case if I signed an arbitration agreement?

Yes. Signing an arbitration agreement does not mean you lose all rights. If your employer fails to follow arbitration procedures, you may be able to litigate your case in court instead.

What should I do if I think my employer is delaying my arbitration case?

Keep records of all deadlines, emails, and payments. If your employer is delaying or missing payments, consult an employment lawyer immediately to protect your rights.

Conclusion: A Win for Employee Rights

The ruling in Colon-Perez v. Security Industry Specialists, Inc. reinforces a key protection for California employees: if an employer fails to pay arbitration fees on time, the employee can take their case to court. This decision prevents employers from using arbitration as a delay tactic while failing to follow their own rules.

Key Takeaways for Employees About Failure to Pay Arbitration Fees

• Missed arbitration payments = breach of contract – Under California law (CCP § 1281.98), employers must pay arbitration fees on time or risk losing the right to arbitration.
• Employees can take their case to court – If an employer defaults on payment, employees can move their case out of arbitration, where they may have stronger legal protections.
• Federal law does not override this protection – The court confirmed that California’s arbitration rules apply, even when an agreement references federal law.

Why Court May Be a Better Option

Taking a case to court can benefit employees by providing broader discovery, more legal protections, and a jury trial, rather than a private arbitrator who may favor the employer.

What to Do If Your Employer Is Delaying Arbitration

If your employer fails to pay arbitration fees or delays the process, you may have grounds to move your case to court. Keep records of all arbitration-related communications and deadlines.

Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit

Matt Ruggles has a thorough understanding of California employment laws and decades of practical experience litigating employment law claims in California state and federal courts.  Using all of his knowledge and experience, Matt and his team can quickly evaluate your potential claim and give you realistic advice on what you can expect if you sue your former employer.

Contact the Ruggles Law Firm at 916-758-8058 for a free, no obligation consultation.

Blog posts are not legal advice and are for information purposes only.  Contact the Ruggles Law Firm for consideration of your individual circumstances.