Arzate v. ACE American Insurance Co.
After a court orders arbitration, the employee-claimants who agreed to “submit” their claims — not the employer that moved to compel — are the party that must file the arbitration demand; the employer’s failure to initiate does not breach the agreement or waive its right to arbitrate.
Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191
Arbitration
Who initiates arbitration
Waiver
In brief. After the trial court compelled arbitration of a wage-and-hour class action, neither side filed an arbitration demand. The trial court then lifted the stay, reasoning that the employer, ACE — which had moved to compel — was the party that “wanted” arbitration and had waived its right by not commencing it. The Court of Appeal reversed. Reading the agreement as a whole, it held that the phrase “‘party who wants to start the [a]rbitration [p]rocedure’” refers to the party asserting a legal claim — here, the plaintiffs, who expressly agreed to “‘submit’” their employment claims to arbitration — so “plaintiffs were required to initiate arbitration, and ACE did not breach the arbitration agreements or waive its right to arbitration by failing to submit plaintiffs’ claims for them.” (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1194.)
By Jonathan J. Delshad
Founder & Editor-in-Chief
Facts
In June 2021, Michelle Arzate and four coworkers filed a class action alleging ACE misclassified them as exempt (Lab. Code, § 515) and denied them overtime, meal, and rest periods (§§ 226.7, 510, 512), later adding individual and representative PAGA claims. (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1194.) ACE moved to compel arbitration under agreements the employees had signed as a condition of employment. (Ibid.)
The agreements had three parts. In the “Arbitration Agreement,” each plaintiff agreed: “‘I agree that, in the event I have any employment related legal claims, I will submit them to final and binding neutral third-party arbitration …. I understand that this agreement means that I cannot bring any employment related claim in court and that I waive my right to a jury trial.’” (Arzate, supra, 108 Cal.App.5th at pp. 1194–1195.) The incorporated policy stated that arbitration “‘is the required and final means for the resolution of any employment-related legal claim’” and “‘prevents both ACE and the employee from going to court.’” (Id. at p. 1200.) The rules and procedures provided that “‘[a] party who wants to start the [a]rbitration [p]rocedure should submit a demand,’” that “[a]n employee’s demand letter” goes to ACE Employee Relations while “‘[i]f ACE is demanding arbitration,’” it sends its letter to the employee, and that ACE “‘will pay all costs of arbitration in those instances in which it is the party demanding arbitration,’” while “‘[i]n the event an employee demands arbitration,’” the employee sends a $200 filing check. (Id. at pp. 1195, 1201.)
Procedural history
The trial court granted ACE’s motion to compel and stayed the litigation, but “neither side took any action to initiate arbitration.” (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1199.) The court then lifted the stay, concluding that the obligation to commence arbitration lay with ACE — the party that had moved to compel — and that ACE had waived its right to arbitrate by not filing a demand within 30 days of the order. (Id. at p. 1194.) ACE appealed. (Ibid.)
The Court of Appeal first held the order appealable, rejecting the plaintiffs’ motion to dismiss: although Code of Civil Procedure section 1294 does not squarely list an order like this one, the order was in legal effect “tantamount to” a refusal to enforce arbitration and appealable on that basis (and under federal law as well). (Arzate, supra, 108 Cal.App.5th at pp. 1196–1197.) It then reached the merits de novo, the facts being undisputed. (Id. at pp. 1198–1199.)
Issue
Under an arbitration agreement in which employees agree to “submit” their employment claims to arbitration, and whose rules require “‘[a] party who wants to start the [a]rbitration [p]rocedure’” to file a demand, which party must initiate arbitration after a court has ordered it — the employee-claimants, or the employer that moved to compel — and does the employer’s failure to file a demand breach the agreement or waive its right to arbitrate? (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1194, 1197–1199.)
Holding
The employee-claimants must initiate arbitration. “[T]he outcome of this appeal depends on the answer to a single question: under the arbitration agreements, which party was required to initiate arbitration?” (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1199.) Read as a whole, the agreements required the plaintiffs — who agreed to “‘submit’” their claims — to file the demand, so “‘party who wants to start the [a]rbitration [p]rocedure’ … can only refer to plaintiffs.” (Id. at pp. 1200–1201.) Consequently, “ACE did not breach the arbitration agreements or waive its right to arbitration by failing to submit plaintiffs’ claims for them,” and the order lifting the stay is reversed. (Id. at pp. 1194, 1201–1202.) The court expressly declined to resolve several “collateral issues,” including the parties’ dispute over Code of Civil Procedure section 1281.98 (arbitration-fee default), which ACE argued had no application because it had not failed to pay any billed fees. (Id. at p. 1199, fn. 4.)
Reasoning
Threshold: the order was appealable as the “functional equivalent” of denying arbitration. Before reaching the merits, the court cleared a jurisdictional hurdle. Code of Civil Procedure section 1294, subdivision (a), makes “‘[a]n order dismissing or denying a petition to compel arbitration’” appealable, but it says nothing about an order that deems arbitration waived after a motion to compel has already been granted, and the plaintiffs — invoking the rule that “‘the right of appeal is wholly statutory in origin’” — moved to dismiss the appeal on that ground. (Arzate, supra, 108 Cal.App.5th at p. 1197, quoting Powers v. City of Richmond (1995) 10 Cal.4th 85, 109 (plur. opn.).) The court disagreed. The order “differed from an order denying a motion to compel arbitration only in its timing”; by lifting the stay after granting ACE’s motion, the trial court “left ACE in the same position as if it had denied the motion to compel in the first place.” (Ibid.) That rendered the order appealable under a general, substance-over-form principle — not any arbitration-specific exception — that “‘an appeal may be taken from … an order’” not statutorily listed “‘if in legal effect it is tantamount to one or more of the orders listed.’” (Ibid., quoting Guardianship of Kawakita (1954) 42 Cal.2d 840, 844; see Civ. Code, § 3528 [“The law respects form less than substance”].) The court took care to meet the plaintiffs’ objection — drawn from Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562 and Morgan v. Sundance, Inc. (2022) 596 U.S. 411 — that a functional-equivalent rule improperly favors arbitration over ordinary litigation: the doctrine, it explained, “does not create a special exception for cases involving arbitration agreements,” but merely applies the same appealability rule courts use outside the arbitration context. (Id. at p. 1197.) Federal law, the court added, permitted the appeal on independent grounds, so it did not need to decide which law governed. (Id. at pp. 1196–1197.)
Read the whole contract, not one clause in isolation. Arbitration agreements are construed like any contract, giving effect to the parties’ intent and to “‘“every part, if reasonably practicable”’” (Civ. Code, § 1641), avoiding a “‘“disjointed, single-paragraph, strict construction approach.”’” (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1200, quoting Rice v. Downs (2016) 248 Cal.App.4th 175, 186.) The plaintiffs’ argument — that ACE “wanted” arbitration because it moved to compel — read the “party who wants to start” clause “in isolation from other contractual language.” (Ibid.)
“Wanting” arbitration cannot mean preferring it to court, because court was never an option. The agreements removed litigation entirely: arbitration was “‘the required and final means’” of resolving employment claims and “‘prevents both ACE and the employee from going to court.’” (Arzate, supra, 108 Cal.App.5th at p. 1200.) So the phrase “‘want[ing] to start the [a]rbitration [p]rocedure’ cannot refer to a preference for arbitration over litigation because the parties already ruled out litigation.” (Ibid.) In that setting, wanting to start arbitration “means a desire to seek redress for an employment related legal claim” — “it must refer to an action by a plaintiff.” (Ibid.) The rules’ “colloquial language,” written “for the benefit of employees without legal training,” confirmed that the plaintiffs, having agreed to “‘submit’” their claims, had to file the demand. (Id. at pp. 1200–1201.)
The AAA framework — claimant demands, respondent answers. Because ACE’s rules were “‘based on and generally follow’” the AAA Employment Arbitration Rules, the court looked to those rules, which have an “‘initiating party’” called the “‘Claimant’” who files a “‘Demand’” stating “‘the nature of the dispute … [and] the remedy sought,’” and a “‘Respondent’” who answers. (Arzate, supra, 108 Cal.App.5th at pp. 1200–1201.) A demand “presuppose[s] that the party filing … is seeking a remedy,” and, quoting the Texas Supreme Court, “‘[i]t would be anomalous to require the party against whom relief is sought to present its opponent’s case.’” (Id. at p. 1201, quoting In re Bruce Terminix Co. (Tex. 1998) 988 S.W.2d 702, 706.) The court cabined its reading in a footnote: this interpretation is “separate from the question of whether a defendant may be required to initiate arbitration if it wishes the arbitrator to take action or if an arbitration agreement calls for it to do so.” (Id. at p. 1201, fn. 6.)
No “hostage” problem on these facts. The plaintiffs argued that an employer that sat on its hands “effectively block[ed] every forum for redress including arbitration itself,” an unconscionable outcome under OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 124. (Arzate, supra, 108 Cal.App.5th at p. 1201.) The court disagreed: “nothing apart from plaintiffs’ own inaction has prevented the case from moving forward.” (Id. at p. 1201.) The only cost to the employee to commence is a $200 AAA fee — “less than half of the filing fee in superior court” — with “[t]he remaining fees … paid by ACE,” and no claim that fee was unconscionable. (Ibid.) “The reason this case has not proceeded in arbitration is that plaintiffs have thus far declined to pursue it there,” and the court “ma[d]e clear that it is plaintiffs who must prosecute their case, including submitting a demand.” (Ibid.)
What the court did not decide. Notably, the court “need not and d[id] not resolve” the parties’ “collateral issues” — including ACE’s asserted “default rule” that the claimant must always file, and the plaintiffs’ analogy to Code of Civil Procedure section 1281.98, under which a party’s failure to pay arbitration fees within 30 days lets the opponent “‘withdraw from arbitration and go to court.’” (Arzate, supra, 108 Cal.App.5th at p. 1199, fn. 4, quoting Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073, 1079.) ACE had argued that statute was “‘irrelevant’” because it never failed to pay a billed fee. The holding is therefore about who must initiate, not about the separate fee-default regime.
Significance
Arzate resolves a recurring, and easily fatal, post-compel procedural question: once a court has ordered arbitration, who has to file the demand? The answer, at least under the common “I will submit my claims to arbitration” form of agreement, is the employee-claimant — not the employer that moved to compel — and the employer’s inaction is neither a breach nor a waiver. The decision is grounded in ordinary contract interpretation (read the whole agreement) reinforced by the AAA’s claimant/respondent structure, and it is careful to disclaim a broader rule: it does not hold that a defendant can never be required to initiate, only that on these agreements the plaintiffs had to. For plaintiffs, the practical significance is a warning: a strategy of waiting out the employer after losing a motion to compel, in the hope that the employer’s silence will forfeit arbitration and return the case to court, will backfire.
Equally important is what Arzate leaves untouched. By expressly declining to reach Code of Civil Procedure section 1281.98, the court preserved the distinct and powerful protection that statute affords: once arbitration is properly initiated, an employer that fails to pay its share of the arbitration fees within 30 days is in material breach and the employee may withdraw and proceed in court. Arzate and the fee-default statutes fit together as a sequence — the employee must file the demand and pay the modest initial fee, and the employer must then timely fund the arbitration or lose it. Read alongside Smith v. Spizzirri (2024) 601 U.S. 472, which requires courts to stay rather than dismiss a compelled case, the lesson is that the same court remains available to enforce those obligations and to receive the case back if the employer defaults.
Key quotes
“Plaintiffs expressly agreed to ‘submit’ their claims to arbitration. In context, the agreements’ language concerning the ‘party who wants to start the [a]rbitration [p]rocedure’ refers to the party that wants to assert a legal claim governed by the arbitration agreements. In this case, that is plaintiffs, not ACE.” (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1194.)
“[W]here the only option for addressing a dispute is in arbitration, ‘want[ing] to start the [a]rbitration [p]rocedure’ means a desire to seek redress for an employment related legal claim. In other words, it must refer to an action by a plaintiff.” (Arzate, supra, 108 Cal.App.5th at p. 1200.)
“The reason this case has not proceeded in arbitration is that plaintiffs have thus far declined to pursue it there. We now make clear that it is plaintiffs who must prosecute their case, including submitting a demand as specified in the arbitration agreements, so that it may proceed.” (Arzate, supra, 108 Cal.App.5th at p. 1201.)
Practice pointer
The plaintiff-side takeaway from Arzate is procedural discipline: if you lose a motion to compel, do not wait for the employer to file the arbitration demand. Under the standard “I will submit my claims to arbitration” agreement, your client is the claimant and must initiate — file the demand and pay the (typically modest) initial fee promptly, ideally within any court-ordered or contractual deadline, so the employer cannot later argue you abandoned the claim. Read the specific agreement, though: Arzate disclaims any universal rule, so an agreement that by its terms requires the employer to initiate, or that calls for the employer to act, may put the burden elsewhere (id. at p. 1201, fn. 6). Once you have initiated, pivot to the fee-default statutes: calendar the employer’s payment deadlines, and if it fails to pay its share of arbitration fees within 30 days, invoke Code of Civil Procedure sections 1281.97 and 1281.98 to withdraw and return to court — a protection Arzate pointedly did not disturb. And because a compelled case must be stayed rather than dismissed after Smith v. Spizzirri, the original court stays available to lift the stay if the employer defaults. For defense counsel, Arzate confirms that moving to compel does not obligate the employer to prosecute the employee’s claim, but it is not a license to stall a properly initiated arbitration by withholding fees.
Open questions
Arzate deliberately left several adjacent questions open. It “need not and d[id] not resolve” whether California recognizes a freestanding “default rule” that the claimant must always file the demand, deciding the case instead on the language of these agreements. (Arzate v. ACE American Insurance Co. (2025) 108 Cal.App.5th 1191, 1199, fn. 4.) It also declined to resolve the plaintiffs’ Code of Civil Procedure section 1281.98 analogy, so the interaction between a party’s failure to initiate arbitration and the statutory fee-default remedy remains for another case. And the court expressly reserved “whether a defendant may be required to initiate arbitration if it wishes the arbitrator to take action or if an arbitration agreement calls for it to do so” (id. at p. 1201, fn. 6) — leaving room for a differently worded agreement, or a differently postured dispute, to place the initiation burden on the employer.