Many employers are considering adopting or revising workplace arbitration agreements in light of the recent U.S. Supreme Court decision holding that such agreements may limit PAGA claims. Here are answers to some of the most frequently asked questions.
What is the decision about?
In Viking River Cruises, Inc. v. Moriana, The employer, Viking River Cruises, Inc. had an arbitration agreement requiring employees to resolve disputes on an individual basis, thereby barring class actions and PAGA claims. While the U.S. Supreme Court previously ruled that class action bars are enforceable, it was unclear whether PAGA claims could be barred on a representative basis. On June 15, 2022, the U.S. Supreme Court overturned California precedent and held that such limitations on PAGA claims are valid.
Should all employers in California adopt arbitration agreements to take advantage of this decision?
There are pros and cons to arbitration. Arbitration can be a relatively quick and efficient means of resolving disputes with employees and it can prevent expensive class and PAGA actions (since June 15, 2022). However, private arbitration is expensive. Arbitrators can cost $10,000 or more per day. Other than court fees, courts do not charge to hear cases.
I am willing to incur the cost of private arbitration. Are there other disadvantages to arbitration?
Yes. Administering an arbitration agreement is complicated. Last year, California adopted a law banning mandatory arbitrations. This means that employers can offer arbitration agreements, but cannot force employees to sign them as a condition of employment. This law is under review currently and so is temporarily on hold, but it could be reinstated at any time. Employers who “force” employees to sign arbitration agreements may soon find the agreements to be unenforceable because of this law.
How can an employee offer arbitration on a voluntary basis?
An employer can present the agreement as an option, informing employees of the advantages of arbitration (quick and efficient claims resolution). To motivate employees to sign, employers can offer an incentive such as a personal holiday or other time off with pay.
My company already has an arbitration agreement. Under the new U.S. Supreme Court decision, is the company protected from PAGA claims?
Not necessarily. The Viking River Cruises arbitration agreement had specific language requiring that claims be resolved on an individual basis and barring representative actions, including PAGA actions. Not all arbitration agreements contain that language. You should review your arbitration agreement to see whether it contains this important provision.
I have reviewed my arbitration agreement and I think it has this important language. Should I assume the company is protected from PAGA claims?
Maybe. But, to be enforceable, arbitration agreements must contain other safeguards for employees. They must be mutual, impose no costs on employees other than costs paid in court, allow all damages and individual claims that could be filed in court, and allow for discovery. You should review your arbitration agreement to see whether it contains these other important provisions.
My company’s arbitration agreement does not contain all the necessary employee safeguards and/or does not contain a provision barring PAGA claims. Should I replace it?
Replacing an arbitration agreement is administratively and legally complex. Employers who force a current employee to sign a new agreement could lose the protection offered from a current agreement (signed before mandatory agreements became unlawful). It may be best to adopt a new agreement for new hires only and then ask current employees to sign the new one when new policies are rolled out at the beginning of the year. Each employer will need to adopt its own strategy to ensure the process is lawful and the new agreement will be enforceable.
My company is in a PAGA lawsuit now. Will the Court stop the lawsuit in light of this new decision if the company has an arbitration agreement?
Courts typically will not stop a lawsuit on their own. You will need to carefully review your agreement and then bring it to the court’s attention with a formal request that it be reviewed. This should be done promptly as waiting too long could be construed as a waiver of arbitration.
Once an employer adopts a valid arbitration agreement requiring disputes to be resolved on an individual basis and barring PAGA-type claims and class claims, will the employer be protected permanently?
Unfortunately, no. California and federal laws change rapidly and new decisions or laws which impact the enforceability of arbitration are likely. Employers should regularly review the legal status of arbitrations to assess whether their agreements remain valid and/or require further revisions and/or improvements.