The United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ (2022), is welcome news for California employers. In short, employers can compel “individual” claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) to arbitration. With the “individual” PAGA claims compelled to arbitration, a court must dismiss the “non-individual” PAGA claims for lack of standing.
Arbitrability of PAGA Under California Law
In 2014, the California Supreme Court held in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), that PAGA representative action waivers in arbitration agreements were invalid. The Iskanian Court also rejected the notion that PAGA claims could be divided into “individual” and “non-individual” components. An “individual” PAGA claim is one premised only on “personally sustained” Labor Code violations. PAGA allows plaintiffs to seek civil penalties for alleged Labor Code violations purportedly suffered by other “aggrieved employees.” These violations are the “non-individual” PAGA claims. Since Iskanian, the view in California was that a plaintiff could not pursue a PAGA claim on an individual basis, because PAGA is by its nature a representative action.
The Supreme Court’s Decision
In an 8–1 decision, the Supreme Court held that the FAA preempts the rule in Iskanian that prohibits the division of PAGA actions into “individual” and “non-individual” claims. The Supreme Court reasoned that this rule required the parties to decide whether to arbitrate or litigate both the “individual” and “non-individual” PAGA claims. Given the potential for high stakes associated with PAGA claims, and the absence of multi-layered review in arbitration, this rule effectively coerced parties to opt for a judicial forum rather than arbitration. This result, the Supreme Court found, was incompatible with the FAA and, therefore, preempted.
The Court further ruled that Viking was entitled to enforce the arbitration agreement as to plaintiff Angie Moriana’s (Moriana) “individual” PAGA claim. Because Moriana’s “individual” claim would no longer be pending in court, she had no standing to maintain the “non-individual” PAGA claims, and the Court ordered the dismissal of the remaining claims.
Even though the Court disagreed with Viking’s position that PAGA waivers in arbitration agreements are enforceable, this did not prevent Viking from compelling Moriana’s “individual” PAGA claims to arbitration and, as a consequence, obtaining the dismissal of the “non-individual” PAGA claims.
For now at least, this decision has the potential to significantly curb PAGA exposure. California employers should review and, if needed, revise their arbitration agreements in light of Viking River to ensure they will withstand legal scrutiny. For those employers that do not currently have arbitration programs, now is a good time to evaluate whether such a program makes sense.