In Viking River Cruises, Inc. v. Moriana, Case No. 20-1573, the U.S. Supreme Court granted certiorari to decide whether representative claims under the Private Attorneys General Act (PAGA) may be compelled to individual arbitration. In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), the California Supreme Court announced a rule against individual arbitration of PAGA claims, but the Court is widely expected to hold that the Federal Arbitration Act (FAA) preempts the Iskanian rule. (To read a recap of the Viking River Cruises oral argument, click here.)

This two-part series examines what may happen next. In Part 1, we explored the arguments that will likely feature in the deluge of motions to compel arbitration that will follow any decision abrogating Iskanian. (To read Part 1, click here.)

In Part 2, we explore how the California legislature may respond. The legislature has shown a strong commitment to the law, even resisting calls for reform from the political left. Notably, Gov. Jerry Brown (D-CA) proposed modest reforms in 2016 to "stabilize and improve the handling of PAGA cases." The legislature adopted some of his proposals but refused such minor tweaks as requiring PAGA plaintiffs to cite legal authorities and estimate the number of affected employees when giving mandatory presuit notice to the state.

Constituents may also pressure legislators to act. The Viking River Cruises argument brought mainstream media attention to PAGA for perhaps the first time in the law's history, from outlets such as the Los Angeles Times, the San Francisco Chronicle, the San Diego Union-Tribune, Vox, and Reuters. If the voting public perceives the conservative-majority Supreme Court as interfering with California's ability to protect its employees, it may demand action (e.g., Charles P. Pierce, Esquire, "John Roberts Has a New Opportunity to Prove His Fealty to Corporate Oligarchy: A California Employment Law Comes Into the Firing Line" (Dec. 15, 2021)).

For these reasons, Sacramento should be expected to do whatever is necessary to legislate around the Viking River Cruises decision and preserve the private attorney general model of enforcing California labor standards. It will have multiple plausible options for doing so.

Empowering the LWDA to exercise greater oversight over PAGA litigation. The plaintiff and amici in Viking River Cruises argued among other things that the FAA is no impediment to the Iskanian rule, because the real party in interest in a PAGA action is the state of California, which did not consent to arbitration. An obvious critique of that argument is that once a PAGA plaintiff gives notice of alleged violations and the Labor and Workforce Development Agency (LWDA) decides not to pursue them, the state has no control over the litigation, no right to intervene and essentially no involvement in the litigation whatsoever.

In light of this criticism, some PAGA proponents have suggested that if the Supreme Court overturns Iskanian, California could legislate around the decision by granting additional power to the LWDA to oversee PAGA litigation, including, for example, giving it the authority to intervene in a lawsuit at any time.

Any such attempt to legislate around the Supreme Court's decision will invite legal challenges. The LWDA's authority to exercise oversight arguably is irrelevant in light of the Supreme Court's repeated instruction that courts "rigorously . . . enforce arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate their disputes[.]" Epic Systems Corp. v. Lewis, 138 S. Ct. 1612, 1621 (2018) (quotation omitted). However, both state courts and the 9th Circuit have historically been skeptical of attempts to compel PAGA claims to individual arbitration. Therefore, it is possible that such a reform could allow plaintiffs to continue bringing PAGA claims for years, until the Supreme Court has the opportunity to address the amended statute.

Eliminating the requirement that a PAGA plaintiff be an aggrieved employee. PAGA provides that a civil action may be brought by any "aggrieved employee." Cal. Lab. Code § 2699(a). Therefore, a decision overturning Iskanian would allow employers to insulate themselves from PAGA claims by requiring their employees as a condition of employment, to sign arbitration agreements waiving the right to bring representative claims.

However, there is no reason why the statute must restrict the pool of potential private attorneys general to "aggrieved employees." In oral argument, Justice Alito observed that California "could have just said that anybody in California or perhaps any place else could bring a suit to vindicate any violation of the labor code." Because "that person wouldn't be in any sort of contractual relationship with the employer . . . the FAA would [not] come into the picture." Hrg. Tr. at 27:18-28:3.

The Texas Heartbeat Act provides a high profile proof of concept. The Act, which prohibits abortions after a fetal heartbeat is detected, broadly empowers "[a]ny person, other than an officer or employee of a state or local governmental entity in this state," to "bring a civil action" for alleged violations of the Act. Tex. Health & Safety Code § 171.208(a). The U.S. Supreme Court has brushed aside criticism that such a broad standing provision improperly "delegat[es] [the state's] enforcement authority to the world at large" Whole Woman's Health v. Jackson, 142 S. Ct. 522, 535 (2021) (quoting Sotomayor, J., concurring in part)), and its tacit endorsement could embolden California to broaden the scope of PAGA's standing requirement-as Justice Alito already suggested it could.

Indeed, Gov. Gavin Newsom (D-CA) has proposed that California pass a similar law permitting private citizens to file civil actions to enforce gun control laws. Shawn Hubler, New York Times, "Newsom Calls for Gun Legislation Modeled on the Texas Abortion Law" (Dec. 12, 2021).1 And the Massachusetts legislature is already considering a bill (H.4681), apparently modeled after PAGA, that would grant standing to nonemployees. H.4681 would allow suits not only by aggrieved employees, but also by contractors, vendors or clients with nonpublic information about alleged violations. It is not inconceivable to think that California may follow suit with a similar bill, or even a more expansive one.

Invalidating any agreement required as a condition of employment. The FAA provides that arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. This provision "establishes an equal-treatment principal: A court may invalidate an arbitration agreement based on generally applicable contract defenses," but not based on a rule "discriminating on its face against arbitration" or "disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements." Kindred Nursing Centers L.P. v. Clark, 137 S. Ct. 1421, 1426 (2017).

A state law invalidating all agreements required as a condition of employment may not run afoul of this principal. Epic Systems, 138 S. Ct. at 1622 ("[T]he saving clause recognizes only defenses that apply to 'any' contract.").2 However, this option could have myriad unintended consequences, such as preventing employers from enforcing codes of conduct or protecting trade secrets. Even strident PAGA supporters might hesitate to support this approach.

Congress conceivably could also act. Because the FAA provides the basis for overturning Iskanian, Congress could also legislate around Viking River Cruises by amending the law. For example, Congress could expressly permit certain state laws, such as laws against predispute waivers of private attorney general claims or laws that ban mandatory arbitration of employment disputes.

Any such measure would require bipartisan support to obtain the necessary 60 votes needed to pass the Senate, which seems unlikely. However, both the House and the Senate recently voted overwhelmingly in favor of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which amends the FAA to provide that predispute arbitration agreements are unenforceable with respect to sexual harassment and sexual assault claims. Pub. Law 117-90, § 2. Thus, although it is hard to imagine Congress taking action to permit private attorney general lawsuits against employers-especially in an election year when Republicans are expected to pick up one or both chambers-the possibility cannot be dismissed out of hand.

In sum, predictions of PAGA's demise are premature. Employers should prepare for the real likelihood that California will continue to employ a private attorney general model of labor standards enforcement for years to come, no matter how the Supreme Court rules in Viking River Cruises.

Footnotes

1. The California legislature is currently considering AB 1594, a less sweeping version of Gov. Newsom's proposal that requires that a private plaintiff have "suffered harm" before filing a lawsuit.

2. However, opponents of such a law would likely argue that it "disfavor[s] contracts that (oh so coincidentally) have the defining features of arbitration agreements." Kindred Nursing Centers, 137 S. Ct. at 1426.

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