In a closely watched case, the U.S. Supreme Court provided some welcome relief to California employers with arbitration agreements this week. The Court held that arbitration agreements that bar employees from pursuing representative claims under the Private Attorneys General Act (PAGA) are enforceable. [20-1573 Viking River Cruises, Inc. v. Moriana (06/15/2022)].
While waivers of class-based litigation in arbitration agreements have been enforced by California courts, waivers of representative actions under PAGA have been barred. The distinction was based on a California Supreme Court opinion that reasoned PAGA claims are on behalf of the state itself and are therefore outside the scope of any employer-employee arbitration agreement. The Supreme Court’s groundbreaking decision this week starkly disagreed with the California Supreme Court. It held that under the Federal Arbitration Act, arbitration agreements must be enforced, even if they include a provision barring employees from joining their individual PAGA claims with the claims of other employees. According to the Court, arbitration agreements cannot waive a PAGA claim, but they can mandate that the arbitration covers only individual-based claims.
As many California employers know, PAGA authorizes any “aggrieved employee” to initiate a lawsuit against a current or former employer on behalf of themselves and “other current or former employees” to obtain civil penalties as a representative action. Most PAGA litigation is against employers for alleged Labor Code violations, such as the failure to properly provide meal and rest breaks, failure to reimburse business expenses, inaccurate or deficient itemized wage statements, and other wage and hour violations. The cases are similar to class action lawsuits except that PAGA actions do not need to meet certification requirements and other challenges that apply to litigating class actions. As a result, PAGA litigation has escalated exponentially in the last five to seven years, leaving employers with few options when faced with defending a PAGA matter with seven-figure exposure.
Viking Cruise Case
In the Viking River Cruises case, the former employee (Moriana) filed a PAGA action against Viking River Cruises alleging Labor Code and other violations on behalf of herself and other Viking employees. Moriana’s employment contract with Viking contained a mandatory arbitration agreement with a “Class Action Waiver,” which provided disputes could not be brought as class, collective, or representative actions under PAGA. Viking’s request to compel arbitration of Moriana’s individual PAGA claim and to dismiss her other PAGA claims were rejected at trial and on appeal in California. The U.S. Supreme Court declared these opinions flawed as they did not respect the terms of the Viking River Cruises-Moriana arbitration agreement. The U.S. Supreme Court found that, while a wholesale waiver of PAGA is not enforceable, “Viking was entitled to enforce the [arbitration] agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim.” Once the individual claim is compelled to arbitration, the Court stated the remaining non-individual claims are subject to dismissal as there is no mechanism to enable a court to “adjudicate” non-individual PAGA claims.
California’s Attorney General Rob Bonta immediately issued a statement in response to the Supreme Court’s Ruling noting:
While today’s decision is disappointing and adds new limits, key aspects of PAGA remain in effect and the law of our state. Workers can continue to bring claims on behalf of the State of California to protect themselves and, in many instances, their colleagues all across California. At the California Department of Justice, we will continue to stand with workers to fight for their rights everywhere.
Bonta went on to state that “employment agreements that completely waive workers’ right to bring PAGA claims remain unenforceable.” However, “workers can be bound by agreement to only pursue their individual PAGA claims through arbitration, rather than on behalf of themselves and other impacted workers.”
Viking River Cruises is a complicated decision and its full impact will not be known for months or years. While helpful to employers who have arbitration agreements in place, there remain clear limits on the validity of arbitration agreements, both with respect to PAGA claims and the manner in which such agreements are offered to employees. Now, more than ever, it is critical that employers obtain legal review of their arbitration agreements to determine if they include the appropriate waiver language. Employers with current PAGA litigation should also consult with counsel about the propriety of seeking potential dismissal or stay of claims through enforcement of an arbitration agreement and/or pursuing an early negotiated favorable settlement.