On June 15, 2022 the U.S. Supreme Court issued its highly anticipated opinion in Viking River Cruises, Inc. v. Moriana, and has effectively wiped-out California’s prohibition on Private Attorney General Act (“PAGA”) waivers in arbitration agreements. To appreciate the significance of the decision, it is necessary to understand the history of PAGA, and how it has been used in litigation in recent years.
PAGA claims are similar to class action claims in that they allow employees to pursue claims on behalf of themselves and others. However, PAGA claims are different in that the employee is pursuing civil penalties on behalf of the California Attorney General for alleged violation of the California Labor Code. Prior to the enactment of PAGA, only the California Attorney General had standing to pursue these civil penalties. Claims pursued under PAGA are generally referred to as “representative actions” as opposed to “class actions.”
Under the Federal Arbitration Act, U.S. employers can require employees to sign arbitration agreements in which the employee and employer agree to arbitrate any future claims arising out of the employment relationship. As part of the arbitration agreement, employees generally agree to waive their right to pursue or be part of any class action or representative action, as they are agreeing to use individual arbitration to resolve all claims arising out of their employment. Essentially, if the employee wants to sue the employer, they have to do so in arbitration and pursue only their own claims.
In 2014, the California Supreme Court issued its opinion in Iskanian v. CLS Transp. Los Angeles, LLC, holding unenforceable any provision in an arbitration agreement which would waive the employee’s right to pursue a representative action under PAGA. This holding led to an absurd result. In many cases, an employee would file a lawsuit alleging individual, class action and representative claims against the employer, and the employer would seek to enforce the arbitration agreement and have the lawsuit decided by an arbitrator. But even if the court found the arbitration agreement enforceable, only the employee’s individual claims would be sent to arbitration, while the representative claim under PAGA would remain in the court. The employer would then have to defend against the action in arbitration, and simultaneously defend the representative PAGA claim in court.
In Viking River, the U.S. Supreme Court held that the FAA preempts the rule established in Iskanian. Going forward a PAGA claim must be treated the same as any other employment claim in the face of a binding arbitration agreement. Thus, rather than pursuing the representative claim in court and the individual claims in arbitration, plaintiffs must pursue all claims in arbitration and only on behalf of themselves. This decision again confirms the U.S. Supreme Court’s position that employment arbitration agreements will be enforced under the FAA.
If you have any questions about whether your company would benefit from utilizing arbitration agreements, or if you have any questions about the enforceability of your arbitration agreement, please feel free to contact us.