Did The U.S. Supreme Court Send the Ever-Controversial California PAGA Claim Down the River for Good?

On June 15, 2022, the United States Supreme Court issued an 8-1 opinion in the highly anticipated in Viking River Cruises, Inc. v. Moriana, addressing whether the Federal Arbitration Act (FAA) preempts California law prohibiting mandatory arbitration of claims brought under California’s Private Attorneys General Act of 2004 (PAGA). Justice Thomas was the sole dissenter. In a victory for California employers, the United States Supreme Court held that the FAA preempts the California Supreme Court’s central holding in Iskanian v. CLS Transportation Los Angeles LLC, that actions brought under PAGA could not be divided into individual and representative claims through an agreement to arbitrate. In other words, the United States Supreme Court ruled that individual PAGA claims can be compelled to arbitration, and once compelled, the non-individual PAGA claims brought on behalf of other individuals cannot be maintained for lack of standing and must be dismissed. This landmark opinion means that, at least for now, arbitration agreements with waivers of the right to bring representative PAGA claims for violations suffered by other alleged “aggrieved employees” will be enforced—just like class action waivers.

PAGA authorizes California employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for violations of California’s Labor Code. Previously, claims brought under PAGA could avoid arbitration due to the 2014 Iskanian decision.Thus, a plaintiff who brought PAGA claims on behalf of themselves (individual claims) and on behalf of other “aggrieved employees” (representative claims) could not be forced to arbitrate either category of claims, and the individual and representative claims could not be split into separate actions through an agreement to arbitrate.

In 2018, a former sales representative sued Viking River Cruises, Inc. on behalf of hundreds of workers over a slew of alleged wage and hour law violations. The plaintiff had signed an arbitration agreement that included a representative action waiver, but she avoided arbitration by bringing the claim under PAGA. A Los Angeles County trial court denied Viking River’s motion to compel arbitration and an appellate court agreed, relying on Iskanian. The California Supreme Court denied Viking River’s petition for review. However, the United States Supreme Court agreed to review the case. Employers had repeatedly attempted to obtain United States Supreme Court review of Iskanian, but those efforts were rejected until this term.

Arguably, the key takeaway from the Viking River decision is that now PAGA claims can be subject to mandatory arbitration on an individual basis. However, while California employers can rest easier knowing PAGA claims are no longer entirely immune to arbitration and waiver agreements, employers should also be aware that, as Justice Sotomayor cautioned, California courts or the California Legislature may take action in the future to chip away at this holding, casting doubt on Viking River’s potential long-term impact. For example, in her concurrence she suggested that California courts could interpret California law differently on the issue of standing or, alternatively, the California Legislature could amend PAGA by adding additional procedural protections or changing the statutory standing requirements.

For now, employees and employers alike should review and pay close attention to the language in any arbitration agreement at issue in light of the recent Viking River decision. For more information or questions, please contact the Johnson Fistel, LLP team.

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