The Supreme Court Preempts California law allowing employees to bring lawsuits on behalf of groups of employees regardless of arbitration agreemeents.
In a huge win for California employers, the Supreme Court ruled in an 8-1 decision that the Federal Arbitration Act preempts a California law that allowed individual employees to bring private lawsuits alleging labor code violations on behalf of groups of employees, even if they had previously agreed to arbitrate their employment disputes. While that law, the Private Attorneys General Act of 2004 (“PAGA”), was intended to protect the rights of employees when the state lacked the resources to do so, in practice, it incentivized plaintiffs’ attorneys to file often frivolous lawsuits against employers as leverage to extract large settlements. As the Supreme Court explained, authorizing private lawsuits to enforce the state’s labor laws allowed employees to escape the binding arbitration agreements that they signed when they were hired.
Revising Your Employee Arbitration Agreements
The Supreme Court’s decision gives renewed strength to the binding nature of employee arbitration agreements in California. California state courts will now be forced to honor employees’ arbitration agreements, and to permit only an employee who did not sign an arbitration agreement to bring PAGA claims on behalf of other employees. The ruling therefore serves as a reminder for employers to revise their arbitration policies and ensure that they have arbitration agreements in place with all employees.
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Viking River Cruises v. Moriana
No. 20-1573 (June 15, 2022)
On June 15, 2022, in Viking River Cruises v. Moriana, the U.S. Supreme Court ruled that individual claims under the California Private Attorneys General Act (“PAGA”) can be compelled to arbitration under the Federal Arbitration Act (“FAA”), partially preempting the California Supreme Court’s longstanding and contrary Iskanian decision. SCOTUS reversed holding the FAA preempts Iskanian’s rule that PAGA claims cannot be divided into individual and non-individual actions through an arbitration agreement. Because individual PAGA claims can be split from separate, “representative” PAGA claims, the Court held that Viking River was entitled to enforce the agreement as it mandated arbitration of Moriana’s individual PAGA claim. Given that Moriana’sindividual PAGA claims were required to be enforced in arbitration, the Court concluded that Moriana lacked statutory standing to continue to maintain her representative PAGA claims and dismissed her remaining claims. The Court, however, held that a waiver of “representative” PAGA claims was still invalid under Iskanian if construed as a “wholesale waiver” of PAGA claims, and that this aspect of Iskanian was not preempted by the FAA. Going forward, PAGA waivers in arbitration agreements should be clear that there is no waiver of the right to bring a PAGA claim for violations allegedly suffered individually by the employee, but that there is a waiver of the right to bring a PAGA claim involving violations allegedly suffered by other employees.
