WORK WITH US
U.S. Supreme Court Rules The Federal Arbitration Act Preempts State Law That Prohibits Arbitration Of California Private Attorneys General Act Claims
Angie Moriana entered into a mandatory arbitration agreement when she was hired by Viking River Cruises (Viking), a company that offers ocean and river cruises around the world. The arbitration agreement waived her and Viking’s right to class, collective, or representative action. The agreement also included a severability clause providing that any invalid portion would be stricken and that any portion of the waiver that remained valid would be enforced in arbitration.
After leaving her position, Moriana filed a Private Attorneys General Act (PAGA) action against Viking. She alleged Viking violated several provisions of the California Labor Code related to minimum wage, overtime, meal and rest periods, and pay statements. The PAGA allows employees to act as agents of the state of California and bring suit against employers for Labor Code violations. The default penalties against employers set by PAGA are $100 for each aggrieved employee per pay period for the initial violation of the Labor Code and $200 for each aggrieved employee per pay period for subsequent violations. Potential penalties in a PAGA action can be significant when they are brought on a representational basis. PAGA also provides for attorneys’ fees for the representative plaintiff. However, PAGA does not authorize employees to pursue individual or private claims for relief. Instead, in a successful PAGA action, the state is entitled to 75 percent of civil penalties recovered, and the remaining 25 percent is distributed among the employees affected by the Labor Code violations at issue. Therefore, plaintiffs often assert both PAGA claims and claims on the underlying Labor Code violations.
Viking filed a motion to compel arbitration of Moriana’s individual PAGA claim – meaning the claims that arose from the violations she personally suffered – and to dismiss her other PAGA claims. The trial court denied the motion, and the Court of Appeal and California Supreme Court affirmed. The California Supreme Court held that pre-dispute agreements that waive the right to “representative” PAGA claims are invalid as a matter of public policy. Other California state courts previously held the Federal Arbitration Act (FAA) does not preempt a state law that prohibits waiver of PAGA actions in an employment contract and that PAGA actions cannot be divided into individual and non-individual claims.
The U.S. Supreme Court reversed the California Supreme Court. The Court held that PAGA claims could be divided into individual and non-individual PAGA claims and that the FAA preempts state law that PAGA precludes the division of PAGA actions into individual and non-individual claims in arbitration agreements. As a result, Viking was entitled to enforce the agreement insofar that it mandated arbitration of Moriana’s individual PAGA claim. Additionally, the Court held that non-individual claims must be dismissed for lack of standing if the individual claims have been compelled to arbitration, as the individual claim is severed from the other employee’s claim in the representational action. The Court explained that a plaintiff can maintain a non-individual PAGA claim only by maintaining an individual claim in the same action. Accordingly, the Supreme Court ordered the representative claims to be dismissed.
Viking River Cruises, Inc. v. Moriana (2022) 142 S. Ct. 1906.
Under Viking River Cruises, employers in PAGA cases may now enforce arbitration agreements for individual PAGA claims. Arbitration of individual claims will now deprive employees of standing to bring a representative PAGA action on behalf of other aggrieved employees. However, the Court left many unanswered questions in its opinion. It remains unknown how an “individual” PAGA claim will be litigated for Labor Code violations an employee personally suffered when the representative action is arbitrated outside of court. Moreover, the state legislature may amend the PAGA to address the standing requirements under Viking River Cruises, as Justice Sonia Sotomayer noted in her concurring opinion.