The U.S. Supreme Court Weighs in on Whether the State Can Prohibit the Arbitration of PAGA Claims

On June 15, 2022, the United States Supreme Court handed California employers a victory in their efforts to enforce arbitration agreements with respect to claims brought under the Private Attorney General Act of 2004, Labor Code § 2698 et seq. (“PAGA”). In doing so, the Court overruled, in part, the California Supreme Court’s decision in Iskanian v. CLS Transportation (2014) 59 Cal. 4th 348 – a decision which has until now largely precluded employers from effectively addressing PAGA claims in arbitration agreements. The decision by the Court was 8 to 1. In deciding Viking River Cruises, Inc. v. Moriana, No. 20-1573, the U.S. Supreme Court held that an employee’s individual claim under PAGA can be compelled to arbitration under certain circumstances which, in effect precludes them from prosecuting the PAGA claims of other individuals.

Background on PAGA: PAGA is an enforcement effort by the State which authorizes employees to act as a proxy of California’s Labor and Workforce Development Agency to initiate an action against employers to recover civil penalties for Labor Code violations that, prior to PAGA, were available only to the State. To file suit, an employee must be “aggrieved,” which is defined as a person against whom one or more alleged Labor Code violations was committed by an employer. Under PAGA, an aggrieved employee is not limited to pursuing penalties for those alleged violations committed against him/her individually but may also seek civil penalties for alleged Labor Code violations committed against other current or former employees.

What led up to the U.S. Supreme Court’s decision? Plaintiff Angie Moriana filed a PAGA action against her former employer, Viking River Cruises, Inc. (“Viking”). Upon Moriana’s hiring, she executed an agreement with Viking to arbitrate any dispute arising out of her employment. The arbitration agreement also included a class action waiver that provided that the parties could not bring any class, collective, or PAGA action in an arbitral forum. The agreement also contained a severability clause which stated that if any portion of the agreement was found to be invalid, the remaining portions would still be enforceable. The lower court denied Viking’s motion to compel arbitration, holding that under the California Supreme Court’s decision in Iskanian, PAGA waivers are unenforceable and employees cannot be compelled to pursue their own individual PAGA claim in arbitration separate from the claims alleged on behalf of other employees in a judicial forum.

What exactly did the U.S. Supreme Court hold? The U.S. Supreme Court held that the Federal Arbitration Act (“FAA”) preempted Iskanian to the extent that Iskanian precluded the division of a PAGA claim into an individual claim (i.e. the alleged Labor Code violations committed against the named plaintiff) and the non-individual claims (i.e. the alleged Labor Code violations committed against other employees). Thus, the Court held that Moriana’s individual PAGA claim should be compelled to arbitration due to her agreement to arbitrate all claims arising out of her employment. The Court further held that with Moriana’s individual claim compelled to arbitration and pared away from the non-individual PAGA claims, her position with respect to the non-individual claims was “no different from a member of the general public.” Slip Op. at 21. Accordingly, Moriana no longer had standing to pursue a PAGA claim on behalf of other employees in a judicial forum and the Court found that those claims should be dismissed.

Are PAGA waivers in arbitration agreements enforceable? The short answer is, no, the FAA does not require the enforcement of PAGA waivers simply because the waiver is part of an arbitration agreement. However, under Moriana, an employee’s agreement to arbitrate their employment-related claims can compel the employee to arbitrate their individual PAGA claims. Indeed, the U.S. Supreme Court determined that there is nothing in the FAA that requires the enforcement of such waivers and thus permitted Moriana to proceed with her own individual PAGA claim in arbitration. The ultimate holding in Moriana was not dependent on finding such PAGA waivers unenforceable.

The Supreme Court’s complete ruling in Moriana can be accessed here.

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