The United States Supreme Court has agreed to take a closer look at the enforceability of arbitration agreements that bar representative claims brought under PAGA, a California law that allows individual employees to police labor code violations.
In Private Attorneys General Act (“PAGA”) cases, employees stand in the shoes of the state, representing allegedly “aggrieved employees” asserting California Labor Code violations against their employer. However, the Supreme Court could soon reign in the thousands of PAGA suits brought by employees every year, by allowing employers to enforce arbitration agreements with their employees that prohibit them from litigating PAGA claims on a representative basis.
The U.S. Supreme Court in AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis, previously held that arbitration agreements with class action waivers are enforceable. However, the California Supreme Court, in Iskanian v. CLS Transportation Los Angeles LLC, carved out PAGA claims and held that arbitration agreements cannot include representative PAGA waivers.
The result of these seemingly contradictory holdings has been that bilateral arbitration – between an employer and individual employee – has not been allowed to flourish in California, as the Supreme Court intended, according to Viking River Cruises, Inc. (“Viking”) in its petition to the Court for certiorari.
The Viking case stems from a 2018 PAGA lawsuit filed in state court by an employee, Angie Moriana. Moriana claimed the company failed to pay proper wages and overtime, and to provide meal and rest breaks and accurate wage statements, in violation of the California Labor Code. She sued on behalf of herself and other aggrieved employees, under PAGA.
Citing a signed arbitration agreement with Moriana that waived representative actions, Viking petitioned the trial court to compel arbitration. The court denied the petition holding that the waiver was against California public policy and that state law was not preempted by the Federal Arbitration Act (“FAA”). The Court of Appeal in California upheld the trial court holding and the state high court declined to review the case.
Viking petitioned the U.S. Supreme Court to review the decision and, despite denying review in other similar cases over the last few years, the Court granted Viking’s petition on December 15. The Supreme Court’s decision to grant review of the case means that employers in California could potentially be looking at a big win. The Court could agree with Viking that the FAA permits employers to require employees to waive the right to litigate PAGA claims as representative actions in court. If Viking prevails, employers would be free to draft arbitration clauses that reflect a desire to arbitrate claims on an individual basis – as opposed to a class action/representative basis.