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On June 15, 2022, the U.S. Supreme Court issued its highly anticipated decision in Viking River Cruises v. Moriana , No 20-15173, holding that arbitration agreements apply to employee claims brought under California’s Private Attorneys General Act (PAGA) and that individualized PAGA claims may be compelled to arbitration. Critically, the U.S. Supreme Court also held that because PAGA doesn’t have a mechanism for courts to hear group claims when the individual who sued is forced into individual arbitration, an individual whose PAGA claims are compelled to individual arbitration loses standing to maintain any non-individual PAGA claims in court. Thus, compelling individual arbitration of an individual PAGA representative’s PAGA claims results in the dismissal of the representative PAGA claims.
In sum, a valid arbitration agreement can now be used to (1) compel the plaintiff’s “individual” PAGA claim to arbitration and (2) to dismiss the “non-individual” PAGA claim.
California employers, who have been increasingly tormented by the filing of abusive PAGA actions in recent years, should be encouraged by this development, as the high court’s ruling signifies an undeniable victory in the decade long battle to treat agreements to arbitrate PAGA claims the same way courts treat class action waivers. But employers should be wary of the fact that Viking River Cruises may not be the final word on the impact of arbitration agreements on PAGA claims.
Background
This case involves former Viking River Cruises employee Angie Moriana, a sales representative who sued her employer in 2018 on behalf of hundreds of other employees through PAGA for various alleged California wage and hour violations.
Viking River Cruises argued that Moriana was barred from bringing these claims in court pursuant to an agreement to arbitrate Moriana entered into when she began her employment. However, as we explained in our earlier report on this matter, while arbitration agreements with class action waivers have been found enforceable by the U.S. Supreme Court, California courts have followed the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014), in which the state high court held that arbitration agreements waiving the right to bring PAGA representative actions (that is, splitting PAGA actions into “individual” and “non-individual” components) are unenforceable.
Following Iskanian, the trial court denied Viking River Cruises’ motion, holding that Moriana’s representative PAGA claim could not be compelled to arbitration under California law. The Court of Appeal affirmed, determining that Iskanian “remains good law.”
On December 15, 2021, the U.S. Supreme granted review of this case. On June 15, 2022, the U.S. Supreme Court rejected the Iskanian rule “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” In other words, the U.S. Supreme Court held that the Federal Arbitration Act (FAA), which governs most arbitration agreements (including those in California), can apply to an individual employee’s claims under PAGA.
As to Moriana’s arbitration agreement and her claims, the Court held in a somewhat oblique analysis:
- The arbitration agreement at issue was invalid to the extent it contained a “wholesale waiver of PAGA claims.” However, because the agreement’s severability clause provided that any invalid portion of the waiver be severed and any remaining valid portion of the waiver must still be enforced, the employer was still entitled to enforce the agreement to compel arbitration of Moriana’s individual PAGA claim (the claim she actually suffered).
- PAGA’s standing requirement permits a plaintiff to maintain non-individual PAGA claims only if they also maintain an individual claim in the same action. As the Court saw it, “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. As a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.”
Collectively, these holdings support that PAGA representative claims may not be dismissed simply because they are representative in nature. However, once a plaintiff’s individual PAGA claims are sent to arbitration, California law does not provide standing for that person’s representative claims to continue in court or arbitration.
Key Implications
This ruling is generally good news for employers. Employees with enforceable arbitration agreements may now be compelled to arbitrate PAGA claims on an individual basis, which would result in the dismissal of the non-individual portion of any PAGA action.
Unfortunately, however, the full impact of this ruling could be short-lived. Had the Court held Iskanian’s prohibition on waivers of PAGA claims preempted by the FAA, this decision would likely have a concrete impact. But by concluding that per se PAGA representative action waivers are unenforceable, and that Moriana’s non-individual (representative) claims should be dismissed only because there is no mechanism in PAGA that provides standing for an arbitration-bound plaintiff to pursue representative claims for others, the court effectively invited California’s legislature to create such a mechanism. Indeed, while Justice Sotomayor concurred with the 8-1 majority opinion, she suggested that the Supreme Court’s interpretation of PAGA could be undermined by the California legislature. With the current makeup of the California Legislature, it is not unforeseeable that California would propose an amendment to PAGA to create rules allowing for representative claims to survive in court even when an individual claim has been sent to arbitration. Yesterday afternoon, for example, California State Senator Dave Cortese tweeted that he is prepared to author legislation to work around the U.S. Supreme Court’s decision.
Nonetheless, employers should immediately take action to benefit from this ruling.
First, California employers without arbitration agreements should assess whether to begin using arbitration agreements.
Second, California employers with arbitration agreements should be making immediate adjustments to their arbitration agreements to reflect this change in law. For example, after Iskanian was decided in 2014, many employers modified their arbitration agreements to specifically exclude PAGA claims from the scope of their agreements. Furthermore, per se PAGA waivers are not enforceable. These agreements should be reviewed and, if necessary, revised as soon as possible.
Third, California employers whose arbitration agreements already cover PAGA claims, and have active PAGA litigation, should immediately consider the impact of this decision and adjust their litigation strategy accordingly. Certainly, these authors will be busy in active PAGA representative action lawsuits filing motions to compel arbitration and seeking dismissal of representative PAGA claims in the coming months.
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