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United States Supreme Court Chips Away at PAGA in New Favorable Decision for Employers

by | Jun 15, 2022 | Employment Law, Employment Litigation, PAGA, Wage & Hour Laws |

On June 15, 2022, the United States Supreme Court issued its long-anticipated decision on Viking River Cruises, Inc. v. Moriana. California employers waited for the highest court’s ruling with bated breath for potential refuge from the avalanche of PAGA actions in California since the statute’s enactment in 2004. After withstanding several setbacks, employers can finally rejoice in this recent judicial opinion.

What role did PAGA play in Viking River Cruises?

As you may already be aware, PAGA authorizes any “aggrieved employee” to initiate an action against an employer “on behalf of himself or herself and other current or former employees” to obtain civil penalties that previously could have been recovered only by the State in an enforcement action brought by California’s Labor and Workforce Development Agency (LWDA). PAGA also allows an employee to unite multiple claims against an opposing party in a single action, as long as they also have at least one individual claim for PAGA penalties against their employer.

In Viking River Cruises, a sales representative working for Viking River Cruises executed an agreement at the outset of her hiring to arbitrate any dispute arising out of her employment. The agreement contained a “Class Action Waiver” providing that in any arbitral proceeding, the parties could not bring any dispute as a class, collective, or representative PAGA action. It also contained a severability clause, which stated that if the waiver was found invalid, any class, collective, representative, or PAGA action would presumptively be litigated in court. But this clause also stated that if any “portion” of the waiver remained valid, it would be “enforced in arbitration.”

Moriana filed a PAGA action against her employer for failing to provide her final wages within 72 hours, as required by §§ 101-102 of the California Labor Code. But her complaint also included a vast array of other labor code violations allegedly sustained by other Viking employees, such as violations concerning the minimum wage, overtime, meal periods, rest periods, timing of pay, and pay statements. Viking River Cruises moved to compel arbitration of Moriana’s individual claim and to dismiss her other claims.

The trial court and California Court of Appeal ruled against Viking River Cruises, relying on the California Supreme Court opinion in Iskanian v. CLS Transp. Los Angeles, LLC. In Iskanian, the court held that wholesale waivers of representative PAGA actions violated public policy and therefore, were unenforceable. Iskanian also invalidated agreements that distinguished individual PAGA claims from non-individual PAGA claims, much like the severability clause in Moriana’s arbitration agreement. To decide whether the Federal Arbitration Act (FAA) preempts the California rule against contractual waivers representative PAGA claims, the Supreme Court granted review.

The Court’s Two-Prong Holding in Viking River Cruises.

The Supreme Court’s decision strikes a balance between the parties’ positions. On the one hand, the Supreme Court held that wholesale waivers of representative PAGA actions are not preempted by the FAA. However, the Supreme Court also held that the Iskanian rule precluding division of PAGA actions into individual and non-individual claims in arbitral proceedings is preempted and therefore individual claims can be compelled to arbitration. This second portion of the holding provides some much-needed relief to employers in California, even though it did not go as far as Viking River Cruises suggested it should (i.e. allowing a wholesale waiver of representative standing to pursue a PAGA action).

Importantly, the Supreme Court also provided guidance as to what is to be done with the non-individual portion of a PAGA claim, once the individual claim is compelled to arbitration. The Supreme Court stated those non-individual claims must be dismissed, as the plaintiff would no longer have standing to pursue the non-individual claims in a judicial forum. This leaves a plaintiff with only the ability to pursue violations individually experienced by them only in arbitration, thus gutting the ability of plaintiffs and their counsel to join multiple claims on behalf of other employees in a judicial forum, and stack penalties ad infinitum.

The result is that an enforceable, carefully drafted contract to arbitrate individual PAGA claims based on personally sustained violations will send an employee’s individual claims to arbitration, with no opportunity to pursue any penalties on behalf of any other employee in court or elsewhere.

What does Viking River Cruises mean for employers?

Employers should work closely with their employment counsel to consider whether an arbitration program is right for them, and ensure that any existing or new agreements are enforceable, well drafted, and aimed to achieve the outcome in Viking River Cruises.

The attorneys at Duggan McHugh Law Corporation are here to ensure that your workplace policies are implemented in accordance with this important legal development.