United States Supreme Court Addresses the Arbitrability of PAGA Claims

On June 15, the United States Supreme Court announced its decision in Viking River Cruises, Inc. v. Moriana, No. 20-1573, ruling 8-1 in favor of the employer and overruling a key holding from the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014). In an opinion authored by Justice Alito, joined by Justices Breyer, Sotomayor, and Kagan, among others, the Court held that the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (“FAA”), preempts a California rule of law invalidating pre-dispute arbitration agreements that require plaintiffs to bring Labor Code Private Attorneys General actions as individual claims in arbitration. Justice Thomas dissented from the opinion, and Justices Sotomayor and Barrett filed separate concurrences.

Background

California’s Labor Code Private Attorneys General Act of 2004, Labor Code §§ 2698 et seq. (“PAGA”), allows an individual employee to assert claims on behalf of other employees for their employer’s alleged violations of the California Labor Code. An employee can bring claims for alleged violations that they personally experienced and—as long as they themselves have allegedly experienced a violation—also claims for violations that other employees experienced. The California Supreme Court’s holding in Iskanian invalidated pre-dispute agreements containing a waiver of an employee’s right to pursue representative claims. Under this rule, an employee could not agree to arbitrate plaintiff-specific claims and waive the right to bring “representative” claims.

In Viking River, the plaintiff Angie Moriana signed an arbitration agreement with her employer, Viking River Cruises, Inc., under which she agreed to arbitrate any individual PAGA claims but waived her right to bring representative PAGA claims. Specifically, the agreement provided in relevant part as follows:

“There will be no right or authority for any dispute to be brought, heard or arbitrated as a class, collective, representative or private attorney general action, or as a member in any purported class, collective, representative or private attorney general proceeding, including, without limitation, uncertified class actions (“Class Action Waiver”); provided, however, that you may opt out of the Class Action Waiver by clicking this box __ before you click below to acknowledge this TCA. Disputes regarding the validity and enforceability of the Class Action Waiver may be resolved only by a civil court of competent jurisdiction and not by an arbitrator. In any case in which (1) the dispute is filed as a class, collective, representative or private attorney general action and (2) a civil court of competent jurisdiction finds all or part of the Class Action Waiver unenforceable, the class, collective, representative and/or private attorney general action must be litigated in a civil court of competent jurisdiction, but the portion of the Class Action Waiver that is enforceable shall be enforced in arbitration.”

After Moriana brought PAGA claims against her employer in California state court, Viking River Cruises moved to compel arbitration of the individual PAGA claim and dismiss the representative PAGA claims. The trial and appellate court agreed that the Iskanian rule precluded the division of Moriana’s claims. The California Supreme Court denied review, and the Supreme Court granted certiorari.

Discussion

The Supreme Court focused on the use of the word “representative” in PAGA case law and parsed out multiple distinct meanings of this term. First, a PAGA plaintiff acts as a “representative” of California’s Labor and Workforce Development Agency (“LWDA”) by essentially enforcing the state’s labor laws. Second, a PAGA claim is “representative” because a plaintiff-employee can bring claims “predicated on code violations sustained by other employees.” Viking River Cruises, Inc. v. Moriana, No. 20-1573, 2022 WL 2135491, at *6 (U.S. June 15, 2022). The Supreme Court further explained that the second meaning of the word “representative” encompasses both individual PAGA claims (claims involving violations suffered by the plaintiff) and representative PAGA claims (claims involving violations suffered by other employees). The Court noted that, under the statute’s text, a plaintiff only has standing to bring a PAGA claim if they personally suffered a labor code violation, but once standing is established, they can also bring claims based on violations that other employees experienced. See California Labor Code § 2699(c) (“‘aggrieved employee’ means any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed”).

The Court found that the FAA permits employers to compel arbitration of “representative” PAGA claims in the first sense of that term (claims brought by a plaintiff acting on behalf of the LWDA). Employers can also compel arbitration of “individual PAGA claims” (claims based on alleged violations specific to the plaintiff employee). The Supreme Court explained that Iskanian does not conflict with either of these principles. However, the Supreme Court identified a conflict between the FAA and another rule set forth in Iskanian: the California Supreme Court’s view that if a plaintiff asserts an “individual PAGA claim” (as defined) in arbitration, they must also be allowed to assert PAGA claims based on violations experienced by other employees in the arbitration. The Supreme Court held that this principle—which amounted to mandatory mass claim joinder—“would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.” Id. at *18. This is precluded by the FAA, according to the Supreme Court, and as a result, the FAA preempts Iskanian to the extent the latter bars division of PAGA actions into individual claims and representative claims (as the Supreme Court defined those terms) through an agreement to arbitrate.

The Supreme Court then focused on the arbitration agreement’s severability clause, which “allowed enforcement of any ‘portion’ of the waiver that remained valid.” Id. at *5. Relying on this language, the Supreme Court held that Viking River could compel Moriana’s “individual PAGA claim” (as defined) to arbitration. But as for the “representative PAGA claims” (claims involving violations suffered by other employees), the Supreme Court reasoned that, in light of Section 2699(c)’s standing requirement, “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” Id. at 21. As “a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.” Id.

Justice Thomas dissented, reasserting his long-standing view that the FAA simply does not apply to state court proceedings. Justice Barrett, who only joined Part III of the opinion, filed a concurrence explaining why she thought much of the Court’s discussion was unnecessary. Justice Sotomayor, who joined in the entirety of the majority opinion, also filed a concurrence emphasizing that parts of the opinion were predicated on the Court’s understanding of California law, and that “if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.” Id. at 1.

Takeaways

• Employers in California who already have arbitration agreements in place should carefully consider what the agreement says, specifically, about PAGA and/or representative actions, and in particular whether the agreement contains a severability clause like the one at issue in Viking River. Future decisions in this area will, in large part, hinge on the exact language of the arbitration agreement at issue.
•  One possible outcome of Viking River may be an increase in the mass filing of individual arbitration demands by the plaintiffs’ bar. 
• Employers should closely review both their own agreements and the rules of their designated arbitration providers in this respect. We also expect to see continued litigation around how, exactly, Section 2699(c)’s standing requirement should be interpreted and applied by California courts.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Apalla U. Chopra, an O’Melveny partner licensed to practice law in California, Adam Karr, an O’Melveny partner licensed to practice law in California, Adam P. KohSweeney, an O’Melveny partner licensed to practice law in California and New York, and Anton Metlitsky, an O’Melveny partner licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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