U.S. Supreme Court upholds arbitration agreements, even in PAGA actions

SCOTUS gives California employers a break.

Many California employers can breathe more easily because claims under the California Private Attorneys General Act can no longer be used to circumvent employee agreements to arbitrate.

At least, not for now.

In Viking River Cruises v. Moriana, the U.S. Supreme Court said that the Federal Arbitration Act preempts the rule announced in the 2014 case of Iskanian v. CLS Transp. Los Angeles, LLC. In Iskanian, the California Supreme Court said that agreements to separately arbitrate or litigate "individual PAGA claims for Labor Code violations that an employee suffered" are invalid. The U.S. Supreme Court disagreed, holding that, where the Federal Arbitration Act applies, if the employee agreed to arbitrate claims against the employer on an individual basis, that agreement had to be honored.

Viking River Cruises

Viking River Cruises, Inc., hired Angie Moriana as a sales representative. She agreed in writing to arbitrate any dispute arising out of her employment. The agreement contained a “Class Action Waiver” providing that, in any arbitration, the parties could not bring any dispute as a class, collective, or representative PAGA action. The agreement also said that if the Class Action Waiver was found to be invalid, any class, collective, or representative PAGA action would be litigated in court. However, any “portion” of the waiver that was deemed valid could still be “enforced in arbitration.”

After leaving her position with Viking, Ms. Moriana filed a PAGA action. She alleged that Viking failed to provide her with her final wages within 72 hours, in violation of the California Labor Code. In addition, she asserted numerous claims on behalf of other Viking employees, including violations of California’s laws regarding minimum wage, overtime, meal and rest periods, timing of pay, and wage statements.

Viking moved to compel arbitration of Moriana’s “individual” PAGA claim (Viking's alleged failure to pay her final wages within 72 hours), and to dismiss the PAGA claims that she brought on behalf of others.

The trial court denied Viking’s motion, and the California Court of Appeal affirmed, holding that an employee could not waive PAGA standing, and that PAGA claims could not be split into arbitrable individual claims and non-arbitrable “representative” claims. Yesterday, the U.S. Supreme Court reversed.

The Supreme Court decision

Key to an understanding of the Court’s holding is that, under PAGA, the term “representative” has two meanings. First, PAGA actions are “representative” because they are essentially qui tam actions brought by employees as agents or proxies of the State of California. Second, PAGA actions are “representative” because they effectively join multiple claims for Labor Code violations against an employer into one single action.

Viking River Cruises addresses the second meaning of “representative” and holds that, where the Federal Arbitration Act applies, an arbitration agreement may require an employee to arbitrate her individual PAGA claim. Thus, the California courts should have compelled Ms. Moriana to arbitrate her individual PAGA claim and dismissed the representative claims that she brought on behalf of other employees. 

Employer next steps

Viking River Cruises is likely to result in a flurry of legislative activity, so it is worthwhile to monitor what is going on in Sacramento. For now, California employers that do not have arbitration agreements should evaluate the advantages of implementing agreements with class and representative action waivers.  Employers with arbitration agreements already in place should consider revising their existing agreements to include class action and representative action waivers and a severability provision. And, of course, in disputed matters covered by arbitration agreements (whether at the demand letter stage, upon receipt of a PAGA notice, or in the midst of a PAGA lawsuit), Viking River Cruises should be considered when developing litigation strategy and in valuing PAGA cases.

We encourage you to consult your Constangy counsel about arbitration agreements in general, as Viking River Cruises is only one of several notable changes to the arbitration legal landscape (see, e.g., Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act and AB 51/Chamber of Commerce v. Bonta).

California employment laws keep employers up at night, wondering what is coming next. There always seems to be something. From new statutes to new regulations to new court decisions, we will keep you up to date on developments in the areas of wage and hour, discrimination, leaves of absence, retaliation, class actions, PAGA, and arbitration. We’ll also provide you with practical information on how to update your policies and employment practices. Please subscribe to keep current.


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