CA Employers: Good News from the US Supreme Court PAGA Actions May Be Subject to Arbitration After All

The lengthy-awaited choice by the US Supreme Court in Viking River Cruises, Inc. v. Moriana was issued on June 15, 2022, and delivers some very good news for California employers. The difficulty before the court was whether the Federal Arbitration Act (FAA) preempts a rule of California regulation that invalidates contractual waivers (e.g. arbitration agreements) of the correct to assert agent statements under California’s Non-public Attorneys Typical Act (PAGA).

Summary of PAGA:

Under PAGA, staff members – as private lawyers typical – have the correct to implement California labor legislation. By its terms, PAGA authorizes any “aggrieved employee” to initiate an action from an employer “on behalf of himself or herself and other recent or former employees” to acquire civil penalties that beforehand could have been recovered only by the Condition in an enforcement action introduced by California’s Labor and Workforce Advancement Agency (LWDA). California precedent holds that a PAGA accommodate is a “representative action” in which the personnel plaintiff sues as an “agent or proxy” of the Condition. An worker with PAGA standing might “seek any civil penalties the state can, including penalties for violations involving workers other than the PAGA litigant herself.”

Summary of the FAA’s Enforcement of Arbitration Agreements:

Section 2 of the FAA tends to make arbitration agreements legitimate, irrevocable, and enforceable, save on this kind of grounds as exist at law or in fairness for the revocation of any deal.  The US Supreme Courtroom explained that segment 2 of the FAA includes two clauses: “An enforcement mandate, which renders agreements to arbitrate enforceable as a issue of federal regulation, and a cost savings clause, which permits invalidation of arbitration clauses on grounds relevant to ‘any contract’ [e.g. fraud or unconscionability) … but not on legal rules that ‘apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.’”  Thus, according to the Court, the FAA “preempts any state rule discriminating on its face against arbitration – for example, a law ‘prohibit[ing] outright the arbitration of a particular sort of declare.’”

Factual and Procedural Summary of the Viking Scenario:

Just after resigning, Moriana submitted a PAGA motion in opposition to her previous employer Viking River Cruises (Viking), alleging that the organization unsuccessful to pay out her last wages in 72 hrs of her remaining day of employment as required by the California Labor Code. She also asserted a huge array of other wage and hour violations allegedly sustained by other Viking personnel, such as bare minimum wage, additional time, and food and relaxation interval violations.

Moriana’s work contract with Viking contained a obligatory arbitration settlement. Critical right here, that arrangement contained both a “class action waiver” furnishing that the get-togethers could not bring any dispute as a class, collective, or consultant action below PAGA, and a severability clause specifying that if the class motion waiver was observed invalid, such a dispute would presumptively be litigated in courtroom. Below the severability clause, any “portion” of the waiver that remained legitimate would be “enforced in arbitration.”

Viking moved to compel arbitration of Moriana’s specific PAGA assert and to dismiss her other non-particular person PAGA statements. Implementing precedent from the California Supreme Court’s selection in Iskanian v. CLS Transp. Los Angeles, LLC (59 Cal. 4th 348), the California trial courtroom denied that motion and the courtroom of charm affirmed the denial, holding that categorical waivers of PAGA standing are opposite to California coverage and that PAGA claims are not able to be break up into arbitrable personal promises and non-arbitrable representative (non-personal) statements. The US Supreme Courtroom granted certiorari to choose no matter whether the FAA preempts the California rule.

US Supreme Court’s Keeping in Viking:

The Court uncovered that a conflict concerning PAGA’s procedural structure and the FAA exists because of to the statute’s created-in mechanism of claim joinder. This system permits an “aggrieved employee” to use the California Labor Code violation they individually endured (e.g. their personal claim) as a foundation to be a part of to their action, any statements that could have been raised by the Condition (e.g. the non-individual promises) in an enforcement continuing.

Also, the Court found that rule from the Iskanian selection prohibiting parties from contracting around this joinder mechanism by invalidating agreements to arbitrate only specific PAGA promises, unduly circumscribes the liberty of the get-togethers to decide the problems matter to arbitration and the policies by which they will arbitrate. The Courtroom explained that Iskanian’s prohibition on wholesale waivers of PAGA statements is not preempted by the FAA. However, the Courtroom stated that Iskanian’s rule that PAGA steps cannot be divided into personal and non-individual claims (e.g. agent statements on behalf of equally-located employees) is preempted. Thus, Viking was entitled to compel arbitration of Moriana’s particular person declare.

The remaining issue then was what the lower courts should do with Moriana’s non-unique PAGA statements. The Courtroom claimed that all those statements are not matter to dismissal basically due to the fact they are consultant promises, but mentioned that PAGA presents no mechanism to enable a court to adjudicate non-specific PAGA claims once an individual declare has been committed to a different continuing. Far more importantly, nonetheless, the Court identified that beneath PAGA’s standing need, a plaintiff has standing to keep non-individual PAGA promises in an action only by advantage of also sustaining an specific assert in that motion. The Courtroom claimed that “when an employee’s very own dispute is pared absent from a PAGA action, the personnel is no distinct from a member of the typical public, and PAGA does not let these individual to maintain a fit.” As a outcome, the Court uncovered that Moriana lacked statutory standing to preserve her non-personal statements in court docket once her person statements were being compelled to arbitration, and the accurate training course was to dismiss her remaining non-personal PAGA claims.

Takeaway:

The Viking decision is good news for California companies who have enforceable arbitration agreements with staff members that involve they arbitrate their workplace disputes, which include wage and hour and PAGA claims. On the other hand, businesses really should stay mindful of two things:

1. As Justice Sotomayor reminded the Court in her concurring belief, if the Court’s knowledge of the standing requirement below PAGA is accurate, the California Legislature is absolutely free to modify the scope of statutory standing beneath PAGA in just condition and federal constitutional limits.
2. There continues to be an open up problem as to whether or not required arbitration agreements in work are enforceable in California. The controversial Assembly Invoice (AB) 51 went into influence in 2020 prohibiting California businesses from necessitating workers to waive their appropriate to pursue an motion in court docket which effectively banned obligatory arbitration agreements. The legislation specifically offered that the legislation did not implement to agreements matter to the FAA, but there continues to be some confusion as to no matter whether or not mandatory arbitration agreements are enforceable in California. AB 51 was immediately challenged in court and an injunction on its enforcement was granted by a federal US District Court docket. Nevertheless, the Ninth Circuit reversed the injunction (in part) in September 2021, lifting the injunction. A petition for rehearing was submitted with the Ninth Circuit but the court docket deferred any further argument on the concern until eventually the U.S. Supreme Court issued its conclusion. Now that the Viking decision has been issued, we foresee that the Ninth Circuit will before long revisit the challenge of enforceability of AB 51 and offer some even more guidance to employers.

We will proceed to monitor developments in both the California Legislature and the Ninth Circuit pertaining to PAGA standing and the enforceability of obligatory arbitration agreements in work. Stay tuned.