On June 15, the U.S. Supreme Court ruled that the California Private Attorneys General Act (PAGA), which allows employees to sue their employer on behalf of the state and seek monetary penalties on behalf of other employees, does not permit them to sidestep arbitration agreements which require such individual actions be brought in an individual arbitration rather than in court. (Viking River Cruises, Inc. v. Moriana). A victory to be sure for California employers, but likely a fleeting one.
In an 8-1 ruling, Justice Samuel Alito, writing for the court, said that the Federal Arbitration Act (FAA), which requires the enforcement of arbitration agreements, trumps the 2014 landmark California Supreme Court decision in Iskanian v. CLS Transp., which held that arbitration agreements purporting to waive the right to bring PAGA claims are unenforceable.
However, the ruling was not the total victory employers were hoping for, as the Supreme Court did not completely overrule Iskanian. Rather, the opinion states that under its holding, Iskanian’s prohibition on “wholesale waivers of PAGA claims” is not preempted by the FAA, thus allowing for some PAGA claims to be litigated in court.
But the rule that PAGA actions cannot be divided into individual and non-individual claims is preempted. Accordingly, Viking was entitled to compel arbitration of Moriana’s individual wage and hour claim. The court left open the door for the courts or the legislature to amend PAGA so that employees could have standing to bring collective actions in court, and side-step arbitration agreements.
Indeed, long before Wednesday’s ruling, Labor-friendly legislators had been scheming on a potential end-around to an anticipated adverse Viking River decision. Democratic state Sen. Dave Cortese, chair of the senate’s labor committee, said he thinks the Legislature will take action predicting the Supreme Court might offer a roadmap to side-step the Supreme Court’s decision.
“Once we have those instructions from the court, the legislation will be crafted to align California law with the best worker protections we can come up with,” said Cortese last April.
In fact, Justice Sonia Sotomayor, in a separate concurring opinion, offered such a roadmap. She wrote that California courts “will have the last word” on which employees have legal standing to assert claims under PAGA, and that “the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits.”
A variety of maneuvers
Last month, the law firm of Akin Gump outlined a variety of maneuvers Labor and the California legislature could make to blunt the impacts of a pro-employer Viking River decision.
For example, “California could legislate around the decision by granting additional power to the Labor and Workforce Development Agency (LWDA) to oversee PAGA litigation, including, for example, giving it the authority to intervene in a lawsuit at any time. “ Or the legislature could simply amend PAGA to grant standing to employees to bring collective action claims on behalf of the state and similarly situated employees.
Regardless of what the Legislature and courts do, employers may be stuck with litigating in court PAGA claims carved out of prior existing arbitration agreements under the Iskanian rule, even though that rule has now been partially overturned by the U.S. Supreme Court.
That leaves the PAGA-Fix Ballot Initiative (Californians for Fair Pay and Employer Accountability Act) which has collected enough signatures to qualify for the 2024 ballot, as the only viable vehicle to provide employers with true PAGA relief. That is because only a voter-enacted law can prevent the Legislature from circumventing the Viking River decision.
The Viking River case stems from a lawsuit brought by Angie Moriana, a former sales representative for Viking River Cruises, who filed a PAGA claim, seeking to recover penalties for an alleged violation of wage and hour law against her, and on behalf of all other allegedly aggrieved employees based on violations she herself did not suffer.
Viking River Cruises argued the claims were subject to individualized arbitration under the arbitration agreement Moriana had signed as a condition of her employment. Relying on Iskanian, the lower state courts held such waivers are unenforceable in PAGA cases. Viking River Cruises then sought and obtained review by the U.S. Supreme Court.
[Jason Resnick is senior vice president and general counsel for Western Growers.]