Since 2004, the Private Attorneys General Act (“PAGA”) has been a thorn in the side of employers in the State of California. Indeed, there are approximately 17 PAGA actions filed every day in the state. A PAGA claim allows a single employee, who alleges a single labor code violation, to step into the shoes of the state and file a “representative” action on behalf of all other employees for a countless number of other violations all as predicates for liability against a single employer. The default penalties are $100 for each aggrieved employee for each pay period and $200 for each aggrieved employee for each pay period for each subsequent violation. Although the penalties are modest for an individual claim, an aggrieved employee can stack numerous violations on behalf of numerous employees leading to an extremely high dollar value case. The risks employers face in these PAGA actions can often exceed the value of the business itself. Despite multiple attempts to narrow down the exposure for PAGA claims, the California legislature and courts have refused to clean up the mess. To make matters worse, in 2014, the California Supreme Court issued its decision in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014) (“Iskanian”) wherein it held that PAGA waivers in arbitration agreements – which prevent employees from litigating representative actions – were unenforceable. The end result is that since 2014, employers in California could not force PAGA claims into arbitration on an individual basis.
That changed yesterday when the US Supreme Court issued its ruling in Viking River Cruises, Inc. v. Moriana596 U.S. _______ (2022) (“Viking River† Now, California employers can start getting some desperately needed relief from PAGA claims. In Viking River, the plaintiff/employee, Angie Moriana (“Moriana”), was hired to work as a sales representative for Viking River Cruises, a company that offers ocean and river cruises around the world. As part of her employment, Moriana signed an agreement to arbitrate any dispute arising out of her employment. The agreement also contained a “Class Action Waiver” providing that in any arbitral proceeding, the parties could not bring any dispute as a class, collective, or representative PAGA action. It also contained a severability clause specifying that if the waiver was found invalid, any class, collective, representative, or PAGA action would presumptively be litigated in court. But under that severability clause, if any “portion” of the waiver remained valid, it would be enforced in arbitration. After leaving her employment with Viking River, Moriana filed a PAGA action against Viking River in California court. The Complaint asserted one labor code violation experienced by Moriana and a wide array of other code violations allegedly sustained by other Viking River employees, including violations of provisions concerning the minimum wage, overtime, meal periods, rest periods, timing of pay, and pay statements . Viking River moved to compel arbitration of Moriana’s “individual PAGA claims” – meaning the claim that arose from the one violation Moriana personally suffered – and to dismiss her other PAGA claims. The trial court denied that motion and it was upheld on appeal on grounds that categorical waivers of PAGA standing are contrary to state policy and that PAGA claims cannot be split into arbitrable individual claims and non-arbitrable representative claims.
The issue to be decided by the US Supreme Court was whether the Federal Arbitration Act (“FAA”) requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA. The US Supreme Court ruled that a conflict did exist between the FAA and Iskanian’s rule preventing the division of individual PAGA claims and non-individual PAGA claims. As described above, prior to this US Supreme Court ruling, a PAGA plaintiff could circumvent their bilateral arbitration agreement by asserting a “representative” PAGA claim and thereby avoid arbitration. According to the US Supreme Court, 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 the arbitration by introducing claims that the parties did not jointly agree to arbitrate – ie , claims for violations allegedly experienced by other employees. Thus, the Court in Viking River hero that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims. This means that Viking River’s motion to compel Moriana’s individual PAGA claim should have been granted.
The Court went further and ruled that, with regard to Moriana’s representative PAGA claims, PAGA does not have a mechanism where the representative claims can be maintained in court when the individual claims have been pared away. Accordingly, the representative claims should be dismissed.
The upshot of this opinion is that every employer doing business in the State of California can, if their arbitration agreement is carefully worded, compel class and representative actions to arbitration on an individual basis. Importantly, the Court in Viking River upheld Iskanian’s rule preventing a wholesale waiver of PAGA claims. Therefore, arbitration agreements cannot outright waive PAGA claims, but can include language that requires an employee to send individual PAGA claims to arbitration, and effectively waive their right to represent other employees under PAGA.