Hohenshelt and the Death of Strict-Liability Forfeiture Under CCP § 1281.98

Section 1281.98 provides that an employer who fails to pay arbitration fees within thirty days of the due date is in material breach, and that the employee may then withdraw from arbitration and proceed in court. Between the statute’s enactment and 2025, every Court of Appeal to interpret it read that language as strict liability. Payment one day late forfeited the right to arbitrate. The reason for the lateness was legally irrelevant.

The results were harsh in ways that had nothing to do with the abuse the statute was aimed at. Employers lost arbitration because an invoice was routed to a departed employee’s inbox, because a payment was initiated on a Friday and landed on a Monday, because a check cleared a holiday-period processing queue a few days late. The forfeiture was the same as it would have been for a company deliberately starving the arbitration to death.

Defense counsel spent those years arguing, without success, that background equitable doctrines had to apply to a forfeiture provision of this severity.

Hohenshelt v. Superior Court (2025) 18 Cal.5th 310 did not strike down section 1281.98 or read its deadline out of the statute. It harmonized the provision with the equitable principles that ordinarily govern forfeitures — relief from forfeiture under Civil Code section 3275, relief from mistake, inadvertence, surprise, or excusable neglect under Code of Civil Procedure section 473(b), and excuse for impossibility under Civil Code section 1511.

The holding is that forfeiture applies where the nonpayment was willful, grossly negligent, or fraudulent. The deadline remains. What changed is that missing it is no longer automatically dispositive, and the inquiry now looks at why it was missed.

The majority expressly disapproved the strict-liability line of Court of Appeal authority that had accumulated over the preceding five years. That is unusually clean for the defense: the cases an opponent is most likely to cite are cases the Supreme Court has named and rejected.

The standard is conduct-focused, which means the record has to be built around what the employer did rather than around what the calendar shows. The facts that matter are the ones establishing an ordinary process that failed in an ordinary way: when the invoice arrived and to whom, what the routing and approval process is, what went wrong in this instance, when the failure was discovered, and how quickly payment followed discovery.

Promptness after discovery does substantial work. An employer that identified the lapse itself and cured it within days is describing negligence at worst. An employer that paid only after the employee moved to withdraw is describing something closer to the conduct the statute targets.

The early decisions applying Hohenshelt track that intuition. In Wilson v. Tap Worldwide, LLC (2025) 114 Cal.App.5th 1077, payment was initiated electronically on day 30 — a Friday — and received the following Monday; the Court of Appeal held on the trial court’s own findings that a one-business-day processing delay was not willful, grossly negligent, or fraudulent as a matter of law, and reversed the abandoned-arbitration fee award under section 1281.98(c)(1) while leaving the mandatory make-whole sanction under section 1281.99 in place.

Why those two moved in opposite directions is worth understanding, because the obvious explanation is not the right one. The section 1281.99(a) sanction survived in Wilson partly for a procedural reason — neither side appealed it, so it remained in force — but the substantive point is that it never depended on forfeiture at all. Hohenshelt read section 1281.99(a) to require the drafting party to pay any reasonable expenses the employee incurred as a result of the late payment, in essence to make the other party whole under Civil Code section 3275, “whether the nonpayment was willful or not.” Section 1281.98(c)(1) is different in kind: it allows recovery of all fees and costs associated with the “abandoned” arbitration, and abandonment means the drafting party forfeited its arbitral rights. Once Hohenshelt made forfeiture depend on willfulness, gross negligence, or fraud, the predicate for subdivision (c)(1) disappeared on facts like Wilson’s while the subdivision (a) obligation stood untouched.

A late payment therefore now carries two very different price tags. The make-whole is owed on any delay, however innocent, and is not worth litigating. The abandoned-arbitration fees are the exposure that matters: in Wilson the plaintiff sought $329,730 in attorney fees on that provision, the trial court cut the award to roughly $11,000, and the Court of Appeal reversed it altogether — against a section 1281.99 sanction of $1,750 that no one contested. The difference between those figures turns entirely on the character of the lapse, which is decided by the record built at the time it happened.

One feature of Wilson is easy to miss and is the most useful thing in it. The employer won the fee appeal and still lost arbitration. It had appealed the order vacating arbitration, then asked the Court of Appeal to dismiss that appeal before briefing commenced; the order was therefore final, the case had proceeded in court in reliance on it, and a trial date had been set. The holding that there was no abandonment as a matter of law reached the fee award and nothing else. An employer whose late payment was genuinely innocent should not assume the forfeiture takes care of itself — the appeal that preserves arbitration is a separate one, and abandoning it is dispositive whatever the merits turn out to be.

In the Colon-Perez litigation itself — one of the eleven disapproved decisions — an unpublished February 2026 opinion on remand (citable to no one under rule 8.1115, but instructive on how courts are applying the standard) reversed with directions to grant relief where a six-day delay was caused by a natural disaster. The line is not drawn by the number of days alone.

Senate Bill 707 created two payment provisions, not one. Section 1281.98 governs the fees that keep a pending arbitration alive, and it is the provision Hohenshelt construed. Section 1281.97 governs the fees that start one — the drafting party’s obligation to pay the initiating costs after arbitration is compelled. The consequences run parallel, and so does the thirty-day structure.

Whether the willfulness gloss carries from one to the other is a real question with a serious argument on each side. In favor: Hohenshelt’s reasoning is not textual in any way peculiar to section 1281.98. It rests on background doctrines that apply to forfeitures generally — relief from forfeiture, relief from mistake or excusable neglect, excuse for impossibility — and nothing in that reasoning depends on which of the two sections produced the forfeiture. Against: section 1281.97 operates at the threshold, before any arbitration exists to be starved, and its consequences are narrower — the employee has two elections rather than four, and sanctions attach only if the employee actually proceeds in court. What will not carry the argument is the material-breach language. Both sections declare the drafting party “in material breach of the arbitration agreement, is in default of the arbitration,” in identical words; the framing is common to them, and a brief resting the distinction on that phrase is resting it on a difference that is not there.

As of August 2026, the question does not appear to have been squarely resolved by a published decision. That should be read as what it is — an absence of located authority rather than a holding — and it counsels the conservative course. Treat the initiating deadline as hard. An employer relying on Hohenshelt to excuse a late initiating payment is relying on an extension of the case rather than on the case, and the cost of being wrong is the same forfeiture the decision was meant to relieve.

The asymmetry that matters is in what the employee may do next, and it is larger than the parallel structure suggests.

Under section 1281.97(b) the employee has two elections: withdraw the claim and proceed in court, or compel arbitration with the drafting party paying reasonable attorney’s fees and costs related to the arbitration. Section 1281.97(d) then provides that sanctions follow under section 1281.99 only “[i]f the employee or consumer proceeds with an action in a court” — so on the initiating-fee provision, an employee who elects to stay in arbitration triggers no statutory sanction at all.

Section 1281.98(b) gives four elections, and two of them have no analogue in section 1281.97. The employee may continue the arbitration if the provider agrees, leaving the provider free to bring a collection action against the defaulting party at the conclusion. Or the employee may pay the drafting party’s fees and proceed — and then “recover all arbitration fees paid on behalf of the drafting party without regard to any findings on the merits in the underlying arbitration.” That is a recovery the employee keeps after losing.

The sanction regime forks the same way. Where the employee withdraws to court under section 1281.98(b)(1), both consequences apply: section 1281.98(c)(1) permits a motion or separate action for all fees and costs of the abandoned arbitration, again “without regard to any findings on the merits,” and section 1281.98(c)(2) makes section 1281.99 sanctions mandatory. Where the employee instead stays in arbitration under paragraphs (2) through (4), section 1281.98(d) directs the arbitrator — not the court — to impose appropriate sanctions, including monetary, issue, evidence, or terminating sanctions. The employee’s election therefore determines both who imposes the sanction and under which statute.

Section 1281.99 has an asymmetry of its own worth noting precisely. Subdivision (a) is mandatory: the court “shall” order the drafting party to pay the reasonable expenses, including fees and costs, incurred as a result of the material breach. Subdivision (b) adds evidence, terminating, and contempt sanctions, but makes them discretionary and subject to an escape — the court may decline where the party “acted with substantial justification or … other circumstances make the imposition of the sanction unjust.” That escape is written into subdivision (b) alone. It does not qualify the monetary sanction in subdivision (a). Nor does subdivision (a) depend on forfeiture: Hohenshelt reads it to require make-whole compensation whether the nonpayment was willful or not, which is why it survives on facts where the abandoned-arbitration remedy under section 1281.98(c)(1) does not.

For planning purposes the consequence is simple enough. The initiating deadline carries a narrower downside than the continuing one, but only if the employee stays in arbitration — which is the election the employer does not control.

Hohenshelt is a safety net, not a schedule. The deadline is unchanged, the burden of establishing excuse sits with the employer, and the inquiry is fact-intensive — which means litigating it costs more than paying on time ever would.

The operational response is unglamorous and effective: name a specific person responsible for arbitration invoices, route them to a monitored address rather than an individual, calendar the due date on receipt with reminders well before it, and pay by a method whose date of receipt is not ambiguous. Every one of the reported disasters in this area is a process failure that any of those steps would have prevented.

The second point is evidentiary. If the lapse has already happened, the record supporting excuse is created contemporaneously or not at all. Emails showing when the invoice was received and who was chasing it are persuasive; a declaration reconstructed months later describing what probably happened is not.