On December 15, 2021, the U.S. Supreme Court in Viking River Cruises, Inc. v. Moriana, No. 20-1573, agreed to review whether arbitration agreements barring claims brought under California’s Private Attorneys General Act (PAGA) are enforceable under the Federal Arbitration Act (FAA). In doing so, the Court will have the chance to resolve a conflict in rulings between the California Supreme Court and U.S. Supreme Court on this important issue.
California employers, who are being increasingly tormented by the filing of boilerplate PAGA actions should be encouraged by this development, as the high court’s ruling could in some ways dictate the future of PAGA.
For background, PAGA was created in 2004 as a “law enforcement” mechanism to remedy a shortage of government resources to police compliance with California’s many labor laws. By adding PAGA to the Labor Code, the law effectively deputizes a single employee to act as a so-called “private attorney general”, permitting that employee to file suit to recover penalties for the State on behalf of all of an employer’s allegedly “aggrieved employees”– and enormous attorneys’ fees. What makes PAGA such a potent weapon is that these PAGA claims are not required to meet the stringent requirements for mounting a class action. Called “representative actions" in the PAGA statute, the employer nevertheless must meet the challenges of a class action case under a different name. Whatever good intentions its supporters may claim, PAGA has become an abusive litigation mechanism, creating perverse incentives for employee-side attorneys, oftentimes with little benefit to the alleged affected employees or the State.
In an attempt to blunt the effect of class and PAGA litigation, many employers have taken to requiring employees to sign an arbitration agreement which requires employees to arbitrate any employment claims (in lieu of bringing an expensive court action) which include a provision specifically precluding employees from joining with co-workers (or former employees) when making a claim (a so-called “class action waiver”).
In 2014, the California Supreme Court issued its landmark holding in Iskanian v. CLS Transportation Los Angeles LLC which held that arbitration agreements in California cannot include PAGA waivers because an employee acting as a private attorney general does not have the legal authority to waive a claim for state mandated penalties that technically belong to the State.
Then, in 2018 the U.S. Supreme Court issued a landmark decision in Epic Systems v. Lewis. That case held that under a federal law (the Federal Arbitration Act), courts must enforce arbitration agreements brought under the FAA according to their terms. In doing so, the Supreme Court held that arbitration agreements may include mandatory class action waivers.
Since the two cases are seemingly at odds with one another on the issue of the validity of class action waivers, Viking River Cruises filed a Petition last May asking the Supreme Court to resolve a conflict between the decisions (i.e., may an employer legally require employees to sign a class action waiver).
Based on language in Epic Systems confirming the individualized nature of arbitration, employer-advocates argued time and again since 2018 that Iskanian is no longer good law and that PAGA representative action waivers must be enforced according to their terms. However, California’s Court of Appeal and the Ninth Circuit U.S. Court of Appeals have repeatedly rejected those contentions.
But the conflict between Epic Systems and Iskanian has always been palpable. Indeed, the Viking River petition that was granted was one of at least seven that employers filed in 2021 asking the high court to weigh in on the PAGA issue.
The U.S. Supreme Court’s decision to hear Viking River this term will likely resolve the ongoing dispute regarding the enforceability of PAGA representative action waivers in arbitration agreements. Moreover, because other states are considering similar legislation, the impact of the U.S. Supreme Court’s forthcoming decision will extend well beyond just California.
While this issue will not be decided until sometime during the Summer of 2022, employers should immediately review their arbitration agreements and consider changing their approach to the arbitration of PAGA cases.
After Iskanian was decided in 2014, many employers modified their arbitration agreements to specifically exclude PAGA claims from the scope of their agreements. Employers should consider whether to revise those agreements; and employers whose arbitration agreements already cover PAGA claims should choose whether to enforce those agreements in pending litigation in anticipation of a possible change in the law.
Employers should also remember that there is still a question pending related to the enforceability of a California statute prohibiting employers from requiring employees or applicants to enter into arbitration agreements as a condition of employment. The Ninth Circuit Court of Appeals is still considering this issue, and it may not be decided for some time. Thus, even if the U.S. Supreme Court concludes that arbitration agreements can include waivers of PAGA representative actions, there may still be a question about whether employers can require employees to enter into these arbitration agreements as a condition of employment.
We will continue to monitor all related developments on this issue. In the meantime, if you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at 818-508-3700 or visit us online at www.brgslaw.com.
Sincerely,
Richard S. Rosenberg
Katherine A. Hren
Matthew B. Golper
Ballard Rosenberg Golper & Savitt, LLP
