California employers scored a victory with the Supreme Court’s June 15, 2022 decision in Viking River Cruises, Inc. v. Moriana, Case No. 20-1573, which finds that individual claims brought under California’s Private Attorneys General Act (“PAGA”) can be compelled to arbitration under the Federal Arbitration Act (“FAA”).
Background on PAGA:
Under PAGA, “an aggrieved employee” can sue an employer “on behalf of himself or herself and other current or former employees” for Labor Code violations, as an agent of the State, to obtain civil penalties. The employee can include individual claims on behalf of herself, as well as other claims for violations involving employees other than herself. If the PAGA action is successful, 75 percent of the award goes to California’s Labor and Workforce Development Agency, and the remaining 25 percent is distributed among the employees affected by the violations at issue.
Prior California Precedent:
Employers often include arbitration agreements and class action waivers in their employment contracts, wherein employees agree to address disputes in arbitration as opposed to in court and waive their rights to bring class, collective, or representative PAGA claims. In California, when employees have ignored these provisions and brought these disputes in court, courts have generally allowed them to proceed under the holding of Iskanian v. CLS Transp. Los Angeles, 59 Cal.4th 348 (2014), which states that categorical waivers of PAGA standing are contrary to public policy and that PAGA claims cannot be split into arbitrable “individual” claims and nonarbitrable “representative” claims.
Summary of Viking River Cruises, Inc. v. Moriana:
In this case, the Supreme Court held that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. In other words, if an employee signs an arbitration agreement, she may be compelled to arbitrate any individual claims brought under PAGA.
Angie Moriana was hired by Viking as a sales representative. Her employment contract contained a mandatory arbitration agreement and a “Class Action Waiver” stating she waived her right to bring any dispute as a class, collective, or representative under PAGA. Notably, the contract also contained a severability clause stating that if the waiver was found invalid, any such action would presumptively be litigated in court; but that if any portion of the waiver remained valid, it would be enforced in arbitration. After her employment ended, Moriana filed a PAGA action against Viking in California court, asserting an individual claim as well as claims on behalf of other Viking employees. Viking moved to compel arbitration of Moriana’s individual claim and to dismiss her other PAGA claims. The trial court denied the motion, and the Court of Appeal affirmed, following the precedent set by Iskanian. In an opinion delivered by Justice Alito, the Supreme Court reversed, finding that the Iskanian decision led to a result incompatible with the FAA. While the Supreme Court did not dispute categorical waivers of PAGA standing are contrary to public policy, it looked to the severability clause of the contract to hold that Moriana’s individual claim under PAGA could be compelled to arbitration. Further, the Supreme Court reasoned that without her individual claim in the action, Moriana now lacks standing to proceed with the remaining claims and that they should therefore be dismissed. Justice Alito reasoned that a plaintiff whose individual claim under PAGA is compelled to arbitration no longer has the standing to pursue the remaining claims. In a concurring opinion, Justice Sotomayor recognized that California courts may find otherwise in future cases or that the California Legislature could modify the scope of the standing requirement under PAGA.
This decision is a win for California employers. It means that employees pursuing PAGA claims can no longer circumvent arbitration agreements and that individual claims brought under PAGA may be compelled to arbitration under any such agreement. Moreover, the employee will lose standing to pursue the claim as a representative action in the civil arena. Further, and given the Supreme Court’s attention to the severability clause in Moriana’s employment contract, California employers should review the specific language of their employment agreements to ensure they align with the reasoning of this holding.
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