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

The very long-awaited final decision by the US Supreme Courtroom in Viking River Cruises, Inc. v. Moriana was issued on June 15, 2022, and brings some great information for California companies. The situation just before the courtroom was whether the Federal Arbitration Act (FAA) preempts a rule of California regulation that invalidates contractual waivers (e.g. arbitration agreements) of the ideal to assert representative statements under California’s Non-public Lawyers Typical Act (PAGA).

Summary of PAGA:

Beneath PAGA, workforce – as personal attorneys common – have the right to enforce California labor regulation. By its phrases, PAGA authorizes any “aggrieved employee” to initiate an action against an employer “on behalf of himself or herself and other existing or former employees” to acquire civil penalties that formerly could have been recovered only by the State in an enforcement action brought by California’s Labor and Workforce Development Company (LWDA). California precedent retains that a PAGA go well with is a “representative action” in which the staff plaintiff sues as an “agent or proxy” of the Condition. An personnel 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:

Part 2 of the FAA helps make arbitration agreements valid, irrevocable, and enforceable, save on this kind of grounds as exist at regulation or in equity for the revocation of any deal.  The US Supreme Court docket defined that area 2 of the FAA is made up of two clauses: “An enforcement mandate, which renders agreements to arbitrate enforceable as a make a difference of federal regulation, and a discounts 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 certain kind of claim.’”

Factual and Procedural Summary of the Viking Situation:

Just after resigning, Moriana submitted a PAGA motion from her previous employer Viking River Cruises (Viking), alleging that the organization failed to pay back her remaining wages in just 72 several hours of her remaining working day of employment as essential by the California Labor Code. She also asserted a broad array of other wage and hour violations allegedly sustained by other Viking staff members, which includes least wage, additional time, and meal and relaxation period of time violations.

Moriana’s work contract with Viking contained a necessary arbitration arrangement. Important below, that agreement contained equally a “class action waiver” offering that the get-togethers could not deliver any dispute as a class, collective, or representative action underneath PAGA, and a severability clause specifying that if the class motion waiver was identified invalid, such a dispute would presumptively be litigated in court docket. Under the severability clause, any “portion” of the waiver that remained legitimate would be “enforced in arbitration.”

Viking moved to compel arbitration of Moriana’s particular person PAGA declare and to dismiss her other non-person PAGA promises. Making use of precedent from the California Supreme Court’s selection in Iskanian v. CLS Transp. Los Angeles, LLC (59 Cal. 4th 348), the California demo courtroom denied that motion and the court of enchantment affirmed the denial, keeping that categorical waivers of PAGA standing are contrary to California policy and that PAGA promises cannot be break up into arbitrable specific statements and non-arbitrable consultant (non-unique) statements. The US Supreme Court granted certiorari to decide no matter if the FAA preempts the California rule.

US Supreme Court’s Holding in Viking:

The Courtroom observed that a conflict concerning PAGA’s procedural structure and the FAA exists due to the statute’s designed-in mechanism of assert joinder. This system permits an “aggrieved employee” to use the California Labor Code violation they individually endured (e.g. their individual claim) as a foundation to sign up for to their motion, any claims that could have been elevated by the Condition (e.g. the non-person promises) in an enforcement continuing.

Additionally, the Court discovered that rule from the Iskanian determination prohibiting get-togethers from contracting close to this joinder system by invalidating agreements to arbitrate only person PAGA statements, unduly circumscribes the freedom of the events to ascertain the problems matter to arbitration and the guidelines by which they will arbitrate. The Court defined that Iskanian’s prohibition on wholesale waivers of PAGA statements is not preempted by the FAA. Even so, the Court docket reported that Iskanian’s rule that PAGA actions can not be divided into personal and non-unique claims (e.g. consultant promises on behalf of similarly-situated workers) is preempted. Therefore, Viking was entitled to compel arbitration of Moriana’s individual claim.

The remaining query then was what the lower courts should do with Moriana’s non-personal PAGA promises. The Court docket claimed that all those claims are not subject to dismissal merely because they are agent promises, but noted that PAGA supplies no mechanism to permit a courtroom to adjudicate non-specific PAGA claims at the time an specific declare has been fully commited to a separate proceeding. More importantly, having said that, the Court docket identified that beneath PAGA’s standing prerequisite, a plaintiff has standing to maintain non-specific PAGA promises in an motion only by virtue of also sustaining an personal claim in that action. The Courtroom said that “when an employee’s very own dispute is pared absent from a PAGA motion, the worker is no distinct from a member of the general public, and PAGA does not allow such man or woman to preserve a suit.” As a end result, the Courtroom observed that Moriana lacked statutory standing to sustain her non-unique promises in court docket after her specific promises were compelled to arbitration, and the right system was to dismiss her remaining non-particular person PAGA statements.

Takeaway:

The Viking choice is excellent news for California businesses who have enforceable arbitration agreements with staff members that demand they arbitrate their office disputes, which includes wage and hour and PAGA promises. Nonetheless, employers should keep on being mindful of two things:

1. As Justice Sotomayor reminded the Court docket in her concurring opinion, if the Court’s being familiar with of the standing necessity beneath PAGA is correct, the California Legislature is absolutely free to modify the scope of statutory standing underneath PAGA in just state and federal constitutional restrictions.
2. There remains an open up question as to irrespective of whether or not necessary arbitration agreements in employment are enforceable in California. The controversial Assembly Invoice (AB) 51 went into effect in 2020 prohibiting California employers from requiring workers to waive their suitable to go after an motion in court docket which successfully banned mandatory arbitration agreements. The legislation particularly provided that the regulation did not implement to agreements matter to the FAA, but there remains some confusion as to whether or not or not required arbitration agreements are enforceable in California. AB 51 was swiftly challenged in court and an injunction on its enforcement was granted by a federal US District Courtroom. Even so, the Ninth Circuit reversed the injunction (in component) in September 2021, lifting the injunction. A petition for rehearing was submitted with the Ninth Circuit but the court docket deferred any even more argument on the issue until eventually the U.S. Supreme Court issued its decision. Now that the Viking determination has been issued, we foresee that the Ninth Circuit will soon revisit the difficulty of enforceability of AB 51 and give some more steering to companies.

We will go on to watch developments in both the California Legislature and the Ninth Circuit regarding PAGA standing and the enforceability of obligatory arbitration agreements in work. Continue to be tuned.