On June 15, 2022, the U.S. Supreme Court issued an opinion in Viking River Cruises, Inc. v. Moriana which states that California Private Attorney General Act (“PAGA”) actions can be subject to arbitration, including on an individual basis.
Arbitration Clauses in General
Employers commonly use arbitration agreements with employees to protect privacy, create a smoother and less expensive process in the resolution of disputes, and provide an efficient way to handle work related issues through a less burdensome process.
The FAA
The Federal Arbitration Act (FAA) was enacted to guard the right to arbitrate and to protect against judicial hostility to arbitration agreements. The FAA protects arbitration agreements as valid, irrevocable and enforceable agreements; it also preempts any state law or judicial opinion that discriminates against the right arbitrate.
PAGA
PAGA was enacted by the California legislature in 2004 to allow aggrieved employees the opportunity to bring a private cause of action against an employer on behalf of themselves and other employees for certain labor violations. PAGA claims are unlike individual claims and class action claims because they are brought on behalf of the state of California in a representative capacity.
Impact of the Viking River Cruises Decision
The U.S. Supreme Courts holding in Viking River Cruises, Inc. v Moriana clarified the FAA’s impact on PAGA as well as its impact on prior California precedent.
The California Supreme Court in Iskanian v CLS Transportation Los Angeles, LLC had previously held that employees could not waive the right to bring a “representative action” under PAGA through an arbitration agreement; consequently, employers have not been permitted to compel employees to arbitrate individual violations separately from non-individual representative claims. According to Iskanian, a PAGA claim could not be divided into the classification of arbitrable individual claims and non-arbitrable representative claims because the entire “representative action” under PAGA was brought on behalf of the state.
The United States Supreme Court’s important decision in Viking River has provided some much-needed clarity on issues regarding the waiver of PAGA claims. In its 8-1 Viking River ruling, the Supreme Court held employers can enforce arbitration agreements in California to the extent they require an employee to arbitrate individual claims under PAGA.
The Court in Viking River held that the FAA preempts the rule in Iskanian which precludes the division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. The Court found that a PAGA claim has been improperly addressed by California courts as being just one single claim. The court stated that, “A PAGA action asserting multiple code violations affecting a range of different employees does not constitute a “single claim” even in the broadest possible sense.”
According to the Court, “a party cannot be compelled under the FAA to submit to class arbitration unless there is a contractional basis for concluding that the party agreed to do so”. This conclusion centered around the well settled principle, that arbitration is a matter of consent. Therefore, the Court held that a state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of arbitration by introducing claims that the parties did not jointly agree to arbitrate.
In other words, the Court disapproved of the indivisibility rule which stemmed from Iskanian because it forced parties wanting to individually arbitrate individual PAGA claims to comply with the state’s expansive rule requiring joinder of other represented employees. The Court held that joinder of that nature led to a coercive result and thus was incompatible with the FAA.
According to the Court, once an employee’s separate individual PAGA claims are sent to arbitration, the non-individual/representive claims must be dismissed because the FAA preempts them, and California law does not provide standing for claims of that nature. However, an employee still has standing to maintain a non-individual representative claim if all claims (both individual and non-individual) are not waived or excluded through the arbitration agreement.
Limitation
The ruling in Viking River clarified and limited the scope of PAGA in the context of arbitration agreements. However, it did not overrule prior precedent which prohibits the wholesale waiver of an entire PAGA claim, as those types of waivers remain unenforceable in that a PAGA action is an action made on behalf of the state of California, and employees cannot waive the state’s right to bring a PAGA action. Rather, the Court’s opinion focused on drawing a distinction between waivers of individual and non-individual representative claims.
Conclusion
The Supreme Court’s ruling continues to follow its recent trend of enforcing bilateral arbitration agreements. Employers should have their arbitration agreements reviewed and updated to include proper language that allows for PAGA actions to be subject to arbitration on an individual basis. Employers battling pending or future PAGA actions should consult with an attorney to determine whether it would be beneficial to demand that PAGA actions be submitted to arbitration.