For some time now, California businesses and their attorneys have questioned the validity of waivers of Private Attorney General Acts (PAGA) in arbitration agreements. That uncertainty has been diminished by a recent ruling of the United States Supreme Court in Viking River Cruises, Inc. v. Moriana (“Viking”) which effectively allows employers to enforce arbitration agreements in California to the extent that these agreements require an employee to arbitrate individual claims under PAGA. This ruling, issued on June 15, 2022, is a rate win for California employers.
As a refresher, PAGA authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations.
In Viking, the California trial court found that arbitration agreements that waive the right to bring representative actions under California law are unenforceable, finding for the plaintiff and allowing her to bring a PAGA action on behalf of the representative class. After unsuccessful appeals to the California appellate courts, Viking River Cruises appealed this case to the Supreme Court of the United States on the theory that the California Supreme Court’s holding in previous case law was overruled by a recent Supreme Court decision (EPIC Systems Corp. v. Lewis). The Supreme Court of the United States held that while the previous California case law (Iskanian v. CLS Transp. Los Angeles, LLC) prohibiting wholesale waivers of PAGA claims is not preempted by the Federal Arbitration Act (“FAA”), that same case law holding that PAGA actions cannot be divided into individual and non-individual claims is pre-empted. This new holding by the Supreme Court of the United States resulted in allowing the employer to compel arbitration of the plaintiff’s individual claims based on a previously signed arbitration agreement. Angie Moriana, a former employee of Viking River Cruises, had a signed bilateral arbitration agreement in place which contained a valid severability clause. In this agreement, she had agreed to waive her representative PAGA claims. Despite that agreement, after her separation from Viking River Cruises, she filed a timely PAGA action against her former employer for violations of the California Labor Code. The Supreme Court of the United States vacated the California Court of Appeals’ decision and remanded the case back to the court for further proceeding, finding that the wholesale waiver of PAGA claims in the agreement was invalid, because the agreement contained a valid severability clause allowing other valid portions to be enforced, Viking was entitled to enforce the agreement to compel arbitration of Moriana’s individual PAGA claims.
The court also held that PAGA plaintiffs in an action must maintain individual claims as well as non-individual claims in order to have standing for a PAGA action. In reviewing the PAGA statutory scheme, the court additionally held that no current mechanisms exist for a court to adjudicate representative PAGA claims without individual claims in the same proceeding. In this case, the Supreme Court found that Moriana lacked statutory standing to continue her representative PAGA claims since her individual PAGA claims were no longer a part of the same action and instead governed by the previously executed arbitration agreement.
This holding will require California employers to review and reassess their arbitration agreements to verify enforcement against PAGA plaintiffs bringing representative actions without individual claims. This decision certainly shines a bright light on the importance of valid severability clauses in employment agreements. As a final note, do keep an eye out for California legislative action in response to this ruling to fortify future PAGA actions. Employers should reach out to their Mitzel Group attorneys for any questions regarding current arbitration agreements or the standing of current PAGA plaintiffs in light of this holding.