U.S. Supreme Court Finds That Individual PAGA Claims Can Be Compelled To Arbitration
Plaintiff Moriana had signed an employment contract containing a mandatory agreement to arbitrate any dispute arising out of her employment with Viking. This agreement also contained a "waiver" that prohibited Moriana from bringing “any dispute as a class, collective, or representative PAGA action.” After Moriana sued Viking in court with a complaint containing a PAGA representative claim, Viking moved to compel arbitration of Moriana’s “individual” PAGA claim. The issue before the U.S. Supreme Court concerned Viking’s effort to enforce the waiver in its mandatory arbitration agreement as to Moriana’s PAGA claim pursuant to the broad preemptive scope of the Federal Arbitration Act ("FAA"). Viking argued that the FAA preempts California case law set out in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) (“Iskanian”), which invalidates arbitration agreements containing contractual waivers of the right to assert representative claims.
The California Supreme Court held in Iskanian that employment arbitration agreements compelling any waiver of an employee’s right to pursue PAGA claims were contrary to public policy and thus unenforceable. The Iskanian court reasoned that the FAA did not mandate enforcement of PAGA waivers because a PAGA action is not a private dispute between employer and employee. Instead, it is a dispute between the employer and the State, and the employee bringing the action merely serves as the State’s proxy. Thus, the Iskanian court believed that a PAGA action was outside the FAA’s coverage because the FAA is limited to controversies “arising out of” the contract between the parties.
Since Iskanian, courts have rejected employers’ attempts to enforce any waiver of PAGA claims through employment arbitration agreements. California courts have also rejected efforts to split PAGA claims into individual and representative components, reasoning PAGA plaintiffs are not seeking individual relief and the State is the real party in interest.
Viking River Cruises Finds That A PAGA Action Necessarily Contains An Individual Component, Which Can Be Compelled To Arbitration
Viking River Cruises rejects the rule that individual PAGA actions cannot be forced into arbitration insofar as it prohibits the “division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” The Court found this is because PAGA’s procedural structure requires that an employee personally suffer Labor Code violations before he or she can serve as the State’s proxy. By effectively invalidating all agreements to arbitrate PAGA claims, including the “individual PAGA claims for Labor Code violations that an employee suffered,” California law “unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate’ ” in violation of the FAA.
Simply put, California’s inflexible imposition of the “joinder” of the “individual” and “non-individual” components of a PAGA action effectively requires parties who agreed to arbitrate individual claims also to agree to arbitrate the non-individual, representative aspects of a PAGA action. This “indivisibility rule” is incompatible with the FAA because it coerces parties to forego arbitration altogether.
Viking River Cruises is a win for employers. The U.S. Supreme Court provided a path for employers to compel employees who have signed valid arbitration agreements to arbitrate their individual PAGA claims. However, it remains to be seen how California Courts will apply and interpret it (or how the California legislature might respond).
In the meantime, employers should review with counsel whether to include arbitration agreements and waivers as part of the employment relationship and review any arbitration agreements currently in place to assess what, if any, changes should be made to them and whether to enforce such agreements in existing disputes.
Finally, it is yet to be seen what, if any, impact this decision has on the pending Chamber of Commerce of the United States v. Bonta, D.C. No. 2:19-cv-02456 (9th Cir. 2021), which was placed on hold pending the U.S. Supreme Court’s Viking River Cruises decision. This case involves the enforcement of AB 51, which prohibits requiring employees, as a condition of employment, to sign agreements after the statute’s effective date to arbitrate California Fair Employment and Housing Act or Labor Code claims.
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