United States: Not So FAAst: Viking River Ruling Creates More PAGA Uncertainty For California Employers

Whether California employees can be forced to individually arbitrate claims brought under the Private Attorneys General Act (PAGA) was finally addressed by the U.S. Supreme Court in Viking River Cruises, Inc. v. Moriana. But the Court's June 15 decision is incredibly nuanced and leaves the door wide open for the California courts to further develop the law and for the California Legislature to modify PAGA, possibly leading to a different result in future matters. Employers with arbitration programs that apply to California-based employees should consider revising their programs in light of this important decision.

In Viking River Cruises, Inc. v. Moriana, a California-based employee filed a PAGA suit against her former employer. PAGA provides employees with an avenue to sue their employers on behalf of California's Labor & Workforce Development Agency for their individual claims and the claims of other "aggrieved" employees for Labor Code violations. PAGA is codified in California Labor Code § 2698 et seq.

Moriana's employment agreement with Viking Cruises contained a waiver of class, collective, and representative PAGA actions. The agreement also contained a severability clause that stated if the waiver was invalid, such disputes would be litigated in court. However, that severability clause also stated that if any portion of the waiver remained valid, then the remaining valid portions would "enforced in arbitration." In other words, even if there were an issue with the waiver, Moriana would be required to arbitrate her claims to the extent that any portion of the waiver remained valid.

Viking moved to compel arbitration of Moriana's individual PAGA claim and to dismiss her non-individual PAGA claims, relying on the Federal Arbitration Act (FAA). The California courts declined to compel arbitration, holding that categorical waivers of PAGA standing are contrary to California policy under the court's earlier decision in Iskanian v. CLS Transp. Los Angeles, LLC. The courts also ruled that PAGA claims cannot be split into arbitrable "individual" claims and non-arbitrable "representative" claims.

In its June 15, 2022 decision, the U.S. Supreme Court reversed the decision from the California courts, compelled arbitration of Moriana's individual PAGA claims, and dismissed the representative aspect of Moriana's PAGA claims. The Supreme Court held that the FAA preempted Iskanian's holding that PAGA claims could not be split into individual and representative claims. However, the Court also held that the Iskanian prohibition on "wholesale" waivers of the right to bring a PAGA representative action remains valid. The Court went on to hold that even if the PAGA waiver in Moriana's agreement was interpreted as a wholesale waiver, the specific language of the savings and conformity clause required arbitration to the extent the waiver was valid-meaning that in this case, Moriana's individual PAGA claims must be arbitrated.

As to the representative claims, the Supreme Court found that, under California law, an individual bringing a PAGA representative claim must be an aggrieved employee. Because Moriana's claims must be arbitrated on an individual basis, she lacks standing to bring a representative action under PAGA. The Supreme Court's decision, therefore, required dismissal of Moriana's representative PAGA claims.

What Should Employers Do Now?

The Supreme Court's decision is incredibly nuanced and requires careful consideration. And the decision creates a great deal of uncertainty, because the majority's decision-and Justice Sonia Sotomayor's concurring opinion-leaves the door wide open for California courts and the California legislature to reshape aspects of California law that necessitated the result in Viking River.

Nevertheless, the Supreme Court's opinion strongly suggests that employee arbitration agreements may require waiver of individual PAGA claims, but may not require waiver of non-individual PAGA claims. Employers with arbitration programs should consider revising their arbitration agreements in light of the Court's holding.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.