U.S. Supreme Court Holds Individual PAGA Claims May Be Compelled to Arbitration
- The U.S. Supreme Court issued its highly anticipated decision in Viking River Cruises, Inc. v. Moriana on June 15, 2022, holding that claims brought under the California Private Attorneys General Act (PAGA) can be split into individual PAGA claims and non-individual PAGA claims brought on behalf of other individuals, and that an employee's individual PAGA claims may be compelled to arbitration.
- The decision further holds that because of PAGA's standing requirements, once an employee's individual PAGA claims are compelled to arbitration, the non-individual PAGA claims brought on behalf of other individuals cannot be maintained in court and must be dismissed.
- Although the interpretations of the decision by California courts – and potential response from the California legislature – remain to be seen, employers with California employees are encouraged to update their arbitration agreements or consider implementing arbitration agreements at this time.
The U.S. Supreme Court issued an 8-1 decision in Viking River Cruises, Inc. v. Moriana, 596 U.S. __ (2022) on June 15, 2022, holding that the Federal Arbitration Act (FAA) preempts the California Supreme Court ruling in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), insofar as Iskanian precludes the arbitration of an individual employee's claims under the California Private Attorneys General Act of 2004 (PAGA). The Court held that PAGA claims could in fact be divided into individual PAGA claims and non-individual PAGA claims, and on that basis individual PAGA claims can be compelled to arbitration. The Supreme Court further held that because of PAGA's standing requirements, when an employee's individual PAGA claim is compelled to arbitration, the employee cannot maintain the non-individual PAGA claim brought on behalf of other individuals in court and must be dismissed. The plain effect of the Court's ruling is that the PAGA claims of all the other "aggrieved employees" whom the individual employee purported to represent could not proceed in court.
The plaintiff, Angie Moriana, worked as a sales representative for Viking River Cruises (Viking) and agreed to submit any employment-related dispute to arbitration with a class action and PAGA representative action waiver. The agreement included a severability clause that any portion of the waiver that remained valid would be enforced in arbitration. Notwithstanding that agreement, Moriana sued Viking on behalf of herself and those similarly situated under PAGA. Moriana relied on the California Supreme Court's decision in Iskanian, which held that PAGA waivers in any forum are unenforceable. Viking moved to compel Moriana's claims to arbitration, arguing that the U.S. Supreme Court's 2018 decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) overruled Iskanian. The trial court denied Viking's motion and the California Court of Appeal affirmed.
Supreme Court Decision
The Supreme Court reversed the California Court of Appeal, holding that Iskanian's rule "that PAGA actions cannot be divided into individual and non-individual claims" is preempted by the FAA and, thus, "Viking is entitled to compel arbitration of Moriana's individual claim."
The Supreme Court also held that "PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding" and "[u]nder PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action." Accordingly, the Court held that Moriana "lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims."
The Supreme Court did not go so far as to hold that PAGA claims are completely preempted, finding instead that a wholesale waiver of PAGA claims is not preempted by the FAA.
Under Viking River Cruises, PAGA claims may now be divided into 1) individual PAGA claims on behalf of the employee only, and 2) non-individual PAGA claims brought on behalf of other alleged aggrieved employees. With a properly written arbitration agreement, individual PAGA claims can be compelled to arbitration, which should result in the dismissal of the non-individual PAGA claims in court for lack of standing under PAGA.
Notably, Supreme Court Justice Sonia Sotomayor's concurring opinion foreshadows that Viking River Cruises is not necessarily the last word on this issue. Sotomayor noted that if the Supreme Court's understanding of PAGA's standing requirements (based on the available guidance to it) is wrong, then "California courts, in an appropriate case, will have the last word." The concurring opinion also noted that even if the Supreme Court's understanding of PAGA standing requirements is correct, "the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits." Thus, it is an open question how California courts, and the California legislature, may respond to the Viking River Cruises decision.
In the meantime, employers may seek reprieve from costly PAGA representative litigation – for now – through employment arbitration agreements, which require arbitration of PAGA claims on an individual basis only. Since the U.S. Supreme Court found that wholesale waivers of PAGA claims are not preempted by the FAA, careful consideration should be given to drafting arbitration agreements so as not to waive an employee's ability to bring individual PAGA claims in arbitration.1
While questions remain, Viking River Cruises is overall a welcome decision for employers with California employees. PAGA penalties – the exposure from which can quickly escalate into the millions of dollars for even the slightest technical noncompliance and the smallest workforces – have devastated businesses since PAGA's enactment in 2004. Employers now have a pathway to defend against PAGA claims brought on behalf of all alleged aggrieved employees.
For more information or questions on the Viking River Cruises decision, contact the authors or another member of Holland & Knight's Labor, Employment and Benefits Group.
1 Notably, of course, employers of "seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce" are excluded from this bonanza result under Section 1 of the FAA. (See Southwest Airlines Co. v. Saxon, 596 U.S. ___, 2022 WL 1914099 (June 6, 2022)) (upholding broad exemption from the FAA for such workers, in that case, cargo handlers and ramp supervisors).
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.