U.S. Supreme Court Rules Individual PAGA Claims May Be Compelled to Arbitration in Favorable Decision for California Employers

Written by Gary McLaughlin

Last week, the U.S. Supreme Court issued a decision in Viking River Cruises, Inc. v. Moriana, ruling that California authority prohibiting mandatory arbitration of claims brought under the Private Attorneys General Act (PAGA) is preempted by the Federal Arbitration Act (FAA) and that such claims can be compelled to arbitration – a welcome victory for California employers. 

Background

California’s Private Attorneys General Act (PAGA) authorizes employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. Previously, claims brought under PAGA could dodge arbitration due to the California Supreme Court’s 2014 ruling in Iskanian v. CLS Transp. Los Angeles LLC, which found that PAGA claims were not subject to representative action waivers in arbitration agreements. Therefore, a plaintiff who brought PAGA claims on behalf of themselves (“individual claims”) and other aggrieved employees (“representative claims”) could not be compelled to arbitration, and the individual and representative claims could not be split into separate actions. The ruling was also based on the theory that PAGA claims are filed on behalf of the State of California, and the State could not be required to comply with an arbitration agreement it did not sign.  

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 U.S. Supreme Court agreed to review the case. 

U.S. Supreme Court Decision

The U.S. Supreme Court disagreed with the California appellate court, holding that the Iskanian rule that “individual” and “representative” claims cannot be split into two separate actions is preempted by the Federal Arbitration Act (FAA). Therefore, Viking River Cruises may compel arbitration of the plaintiff’s individual PAGA claim. The Court further found that, once an employee must arbitrate their individual PAGA claims, they lack the standing to pursue the representative claims in court. This decision will now effectively allow employers to avoid representative PAGA actions through the use of arbitration agreements.

Employer Takeaways 

The key takeaway from the Court’s ruling is that now PAGA claims can be subject to mandatory arbitration on an individual basis.  This gives California employers an important new tool they can use to mitigate the substantial risk posed by broad representative PAGA actions.  However, while arbitration agreements can now require employees to arbitrate their PAGA claims on an individual basis, they still cannot waive the right to bring PAGA claims entirely. 

Employers should review their arbitration agreements and update them accordingly in light of the Court’s ruling.  California employers who do not currently use arbitration agreements may want to consider implementing them in light of this ruling. 

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