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U.S. Supreme Court Permits Carefully Crafted Agreements to Arbitrate PAGA Claims

by Jennifer Shaw | | June 16, 2022

In a bit of welcome news, the United States Supreme Court issued its decision yesterday in Viking River Cruises, Inc. v. Moriana.  As you may recall, this case involved whether a California employer may include in an arbitration agreement a waiver of representative claims under the Private Attorneys General Act (“PAGA”).

By way of review, PAGA is a California law that permits individual employees to bring actions on behalf of the State to recover penalties from employers that violate California’s Labor Code. In these actions, an employee can sue about  Labor Code violations that they personally experienced (“individual claims”) as well as Labor Code violations that other employees experienced (“representative claims”).  In 2014, the California Supreme Court ruled in Iskanian v. CLS Transportation Los Angeles that employees may not prospectively waive in an arbitration agreement or any other type of contract their right to bring a representative PAGA action. The Court further held that the employee’s individual claims could not be “split” from the representative claims and compelled to arbitration.  A year later, in Sakkab v. Luxottica Retail North America, Inc., the Ninth Circuit Court of Appeals agreed with the California Supreme Court that the Federal Arbitration Act (“FAA”) did not preempt Iskanian’s holding, because Iskanian does not prohibit arbitration of specific types of claims, or otherwise disfavor arbitration. Consistent with these decisions, the U.S. Supreme Court subsequently denied numerous petitions for certiorari arguing that Iskanian and Sakkab should be overruled.

So, what happened in Viking?  There, an employee of Viking River Cruise, Inc. sued the company in California state court under PAGA, claiming various violations of California’s wage and hour laws. Viking moved to compel arbitration based on its arbitration agreement (which the plaintiff signed) that forbids an employee from bringing any PAGA claim. The trial court and the California Court of Appeal, applying Iskanian, held that the waiver of PAGA claims was unenforceable, and the plaintiff could pursue all of her claims in court.  The California Supreme Court denied review. Viking then filed a petition for certiorari to the U.S. Supreme Court.

In this decision, the Court struck down the waiver in Viking’s arbitration agreement of Moriana’s right to bring a representative PAGA claim.  However, it upheld the arbitration agreement with respect to Moriana’s individual claims.  Significantly, the Court held that if the employee’s individual PAGA claims are pursued in arbitration, that employee will likely lack standing to pursue any representative PAGA claims.  What does this mean?  Several things:

  • Employers that carefully craft their arbitration agreements may compel employees to bring their individual PAGA claims in arbitration, and NOT in court.  And by virtue of the individual claims being resolved in arbitration, that employee likely will not have standing to pursue the representative claims in court. Yowza!  Just about every employer should now implement an arbitration program, which may permit them to avoid costly PAGA litigation in court.
  • Employers should not include language in their arbitration agreements waiving an employee’s right to bring a representative PAGA claim on behalf of her coworkers.  Many arbitration agreements currently contain that language, so employers will need to revise and redistribute them.

There are many issues to discuss regarding the Viking decision.  To learn more, be sure and register for our webinar, “Understanding the U.S. Supreme Court’s PAGA Arbitration Decision,” which is set for June 22, 2022, from 9:00 a.m. – 10:00 a.m.  Register here. Space is limited.

And, call your employment advice attorney.  Pronto.

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