n June 15, 2022, the Supreme Court of the United States ruled in favor of Viking River Cruises Inc. in a case over whether it could use an arbitration agreement to force a lawsuit brought under California’s Private Attorneys General Act (PAGA) on behalf of aggrieved employees into arbitration.

In Viking River Cruises, Inc. v. Moriana, No. 20-1573, the Supreme Court’s highly anticipated decision, the Court reasoned that the Federal Arbitration Act (FAA) requires the enforcement of an arbitration agreement that waives an employee’s right to bring individual claims through PAGA and that once those individual claims are sent to arbitration there is no standing to bring representative claims for violations of the California Labor Code on behalf of other aggrieved employees. However, the Court left open the possibility that California could adjust PAGA to permit representative claims to survive and be brought in court. In short, while a victory for employers, this decision may not be the final word on the interplay between PAGA and the FAA.

Background

Angie Moriana, a former sales representative for Viking River Cruises, sought to prosecute claims for California wage and hour violations through PAGA, which enables employees to bring claims for violations of the California Labor Code on behalf of all other allegedly aggrieved employees. The law allows for civil penalties against the employer, which are awarded per person and can grow exponentially, depending on the number of employees potentially affected.

Viking River Cruises argued the claims were subject to individualized arbitration under an arbitration agreement Moriana signed as a condition of her employment. While arbitration agreements with class action waivers have been enforced by the high court, California state courts had previously held such waivers are unenforceable in PAGA cases.

The Supreme Court held that the FAA preempts the California rule that PAGA actions cannot be forced into arbitration “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” This means that the PAGA representative claims may not be dismissed simply because they are representative in nature but that once the plaintiff’s individual claim is sent to arbitration, California law does not provide standing for that person’s representative claims to continue in court or arbitration. This effectively provides a way for employers to minimize the risk of PAGA claims with a properly crafted arbitration agreement. It remains to be seen whether California will adjust PAGA and what the impact of any adjustment will be.

The Supreme Court thus reversed the California Court of Appeal’s decision allowing Moriana’s PAGA action to continue and remanded it back to the California court. However, the high court’s reasoning may leave the door open for the California courts or legislature to provide standing for representative claims to continue either in court or in arbitration, separate from an individual PAGA claim.

Key Takeaways

The ruling follows the Supreme Court’s trend of enforcing bilateral arbitration agreements pursuant to their terms, although it is significantly more nuanced than some advocates wanted. Importantly, the decision in Viking River Cruises indicates employers may be able to use properly drafted arbitration agreements to limit liability for representative claims, at least for now. However, the high court’s reasoning could leave room for California to allow representative claims to proceed separate from individual claims. In the meantime, (1) those employers with operations in California and arbitration agreements may want to update their agreements, and (2) those employers with operations in California but without arbitration agreements may want to reassess whether to roll out an arbitration agreement in order to take advantage of today’s ruling.