On June 15, 2022, the Supreme Court of the United States issued a decision in Viking River Cruises, Inc. v. Moriana. The Court reviewed the enforceability of a Labor Code Private Attorneys General Act of 2004 (“PAGA”) claim waiver in an employee’s mandatory arbitration agreement. The agreement also contained a severability clause specifying that if the waiver was found invalid, any class, collective, representative, or PAGA action would be litigated in court; and that any portion of the waiver that remained valid would be enforced in arbitration.
For context, back in 2014, the Supreme Court of California held in a case called Iskanian v. CLS Transportation Los Angeles, LLC, that the waiver of representative claims under PAGA in employee arbitration agreements are not enforceable. PAGA claims authorize any “aggrieved employee” to initiate an action against a current or former employer as an agent, for the State of California, to obtain civil penalties for Labor Code violations because of the State’s lack of resources to pursue the claims itself. Common examples of Labor Code violations are wage and hour violations like failure to timely pay regular or overtime wages, failure to provide breaks, and wage statement or paystub noncompliance. The State is always the real party in interest in PAGA claims and the employee plaintiff is just a proxy for California. Back to Viking River.
First, the Viking River Court affirmed that representative PAGA claim waivers were invalid and not enforceable. Second, however, the Court held that the Federal Arbitration Act (“FAA”) preempts the rule of Iskanian insofar as it precluded dividing PAGA actions into both individual and non-individual PAGA claims through an agreement to arbitrate. The Iskanian Court never took a clear position in its decision on whether there is only one type of PAGA claim or those two separate types of PAGA claims even exist. But the Viking River Court did. After examining two different meanings for the term “representative”, commonly used in vocabulary related to the PAGA statute, the Court explained that “individual PAGA claims” are based on Labor Code violations suffered directly by the plaintiff employee and that “non-individual PAGA claims” or “representative PAGA claims” are based on those violations other employees suffered.
Third, the Court did not order the “non-individual PAGA claims” or “representative PAGA claims” into arbitration. The opinion does not appear to explain why in detail. Presumably, it was because the Court found the waiver of representative claims invalid and the arbitration agreement explicitly stated those claims would be litigated in court if the waiver was found invalid. Fourth, however, the Court held that the severability clause in the agreement entitled Viking to enforce the mandatory arbitration of Moriana’s “individual PAGA claims.” The rationale for that, which the Court did not articulate clearly, implicitly must be a finding that the arbitration agreement had a valid waiver of Moriana’s right to file those claims in court.
Fifth, the Court held that Moriani lacked standing to pursue the “non-individual PAGA claims” in court because a purported defect in the PAGA statute lacks a mechanism to enable courts to adjudicate “non-individual PAGA claims” once the related “individual PAGA claims” were sent to a separate arbitration proceeding. At that point, Moriani would not have any more standing in the “non-individual PAGA claims” case left in court than any member of the general public.
What does this all mean for employees? Some PAGA cases will be negatively affected for employees with arbitration agreements, especially those which commit “representative PAGA claims” to litigation in the courts based on an invalid waiver. On the other hand, Viking River appears to indicate now that all, or at least individual, PAGA claims can be pursued in an arbitration proceeding. Further, the decision unequivocally affirms that employers cannot obtain waivers of any kind from employees for PAGA claims or penalties. Finally, California’s legislature can amend the PAGA statute language to expand standing, even in the face of arbitration agreements and waivers.
(See Link(s): Labor Code Section 2699)