Mcle Self-study: Paga Is Not Dead Yet! Viking's Impact Likely Minimal

• Publication year: 2022
• Author: Lauren Teukolsky

MCLE SELF-STUDY: PAGA IS NOT DEAD YET! VIKING'S IMPACT LIKELY MINIMAL

AUTHORS^*

Lauren Teukolsky

Michael Rubin

INTRODUCTION

On June 15, 2022, after the United States Supreme Court decided Viking River Cruises, Inc. v. Moriana,¹ there was handwringing among workers' advocates about whether the Court had gutted California's Private Attorneys General Act (PAGA).² Social media was flooded with the message that "PAGA is dead!"

Reports of PAGA's demise turned out to be premature. Recent developments demonstrate that the practical impacts of Viking on PAGA will likely be minimal, while the majority decision announced several legal principles that will actually strengthen the State's power to protect workplace rights from contractual waiver. Below, we discuss the history of Viking, the legal strategies in the Supreme Court, what was and was not decided, and why California trial courts have almost uniformly refused to be bound by the majority's state-law-based holding.

THE RISE OF PAGA AND MANDATORY ARBITRATION AGREEMENTS

Enacted in 2003, PAGA allows "aggrieved employees" to step into the shoes of the State of California's Labor and Workforce Development Agency (LWDA) to bring enforcement actions against employers.³Once deputized by filing a PAGA notice and waiting the prescribed statutory time periods,⁴ the plaintiff may bring claims for civil penalties on behalf of plaintiff and other "aggrieved employees" who have suffered one or more Labor Code violations, with 75% of the penalties going to the State and 25% shared among all "aggrieved employees."⁵PAGA plaintiffs may not recover back wages, other statutory penalties, or "victim-specific" relief.⁶

In 1992, just over 2% of American workers were subject to mandatory arbitration.⁷ That percentage rose to almost 25% by the early 2000s and to 55% by 2018.⁸ Employers used arbitration agreements not only to compel waiver of the judicial forum, but after workers pushed back by successfully pursuing class actions in arbitration, employers also began to use arbitration agreements to compel waiver of class and other collective action.

THE BLESSING OF CLASS ACTION WAIVERS IN MANDATORY ARBITRATION AGREEMENTS

In 2005, the California Supreme Court held in Discover Bank v. Superior Court⁹ that class action waivers in consumer arbitration agreements violated public policy and were unenforceable. Two years later, the Court extended that ruling to employment arbitration in Gentry v. Superior Court.¹⁰

In AT&T Mobility LLC v. Concepcion¹¹ the United States Supreme Court reversed Discover Bank. The Court held that the FAA preempted California's public policy ban on class action waivers, because by forcing parties to arbitrate on a class-action basis despite their agreement not to, the Discover Bank rule interfered with several "fundamental attributes of arbitration."¹² No mention was made of class-action waivers in employment arbitration, but the Court's analysis seemed broad enough to swallow Gentry as well.

WOULD PAGA WAIVERS SUFFER THE SAME FATE?

In 2014, the California Supreme Court issued its landmark decision in Iskanian v. CLS Transportation Los Angeles, LLC.¹³ Although most attorneys are familiar with Iskanian's PAGA analysis, the case also held that Concepcion

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had implicitly overruled Gentry, and that any state rule barring class action waivers in the employment context is preempted by the FAA.¹⁴ The Court distinguished PAGA waivers, though, concluding that California's rule prohibiting contractual waiver of statutory PAGA rights was not preempted by the FAA, because a PAGA action is a type of "qui tam" action between the State as the real party in interest and the employer, yet the State never agreed to arbitrate anything.¹⁵

Concurring, Justice Chin joined by Justice Baxter agreed that PAGA waivers in arbitration agreements are unenforceable. They disagreed with the majority's reasoning, concluding that by forbidding an employee to assert a PAGA claim in any forum, the arbitration agreement required an unlawful contractual waiver of substantive rights.¹⁶

One year later, the Ninth Circuit reached the same result in Sakkab v. Luxottica Retail N.A., Inc.,¹⁷ although on a different basis. The Ninth Circuit decided that the reason the FAA did not preempt California's prohibition of PAGA waivers was because the FAA's section 2 "savings clause" preserves any state law rule that applies equally to all contracts, and neither singles out arbitration agreements nor interferes with any fundamental attributes of arbitration. Because Iskanian barred enforcement of any contract requiring a PAGA waiver,¹⁸ and because PAGA actions are fundamentally different from class actions (which impose a number of formal requirements on the parties and involve the due process rights of absent class members),¹⁹the Ninth Circuit concluded that the FAA does not preempt California's rule prohibiting waiver of statutory PAGA rights.²⁰

The United States Supreme Court denied certiorari in Sakkab and more than a half dozen other federal and state cases applying the Iskanian rule in subsequent years.²¹ During that period, California appellate courts issued numerous decisions following Iskanian.²² Although employers continued to bring motions to compel arbitration in PAGA cases, including by asking courts to send the employee's "individual PAGA claim" to arbitration, the courts uniformly rebuffed these efforts. Instead, they concluded that PAGA claims could not be split into "representative" and "individual" components.²³

STRATEGY IN BRIEFING AND ORAL ARGUMENT BEFORE THE SUPREME COURT

On December 15, 2021, the United States Supreme Court granted certiorari in Viking, an unpublished decision from the Second District Court of Appeal.²⁴ Court watchers speculated that the newly reconstituted United States

Supreme Court had taken the case to finally overrule Iskanian. The Justices who voted for certiorari were apparently so confident in the outcome that they took Viking, a case decided by a state rather than federal court (rather than one of the five other pending cert petitions raising the issue). They did so despite Justice Thomas' long-held position that the FAA—and thus, FAA preemption—does not apply in state court proceedings.²⁵

The merits briefs submitted by Viking and its 10 amici made four main arguments: (1) Iskanian was poorly reasoned, because unlike true qui tam cases where the state maintains control, under PAGA the LWDA delegates complete authority and control to plaintiffs' counsel; (2) PAGA representative actions are no different from class actions, so Concepcion's reasoning fully applies; (3) PAGA representative actions interfere with "bilaterality," a fundamental attribute of arbitration; and (4) FAA preemption is so powerful that it strips individuals of even substantive state law rights.²⁶

Respondent Moriana's team, including one of the authors of this article, made a crucial strategic decision not to defend the reasoning of the Iskanian majority, which the United States Supreme Court had presumably targeted for overturning. Instead, respondent focused on the text and history of the FAA, arguing that nothing in the statutory text authorizes agreements to prohibit (rather than require) arbitration. Respondent also pointed out that representative disputes (including labor arbitrations) were commonly arbitrated in 1925, when the FAA was enacted.²⁷

During oral argument, Justice Alito, the eventual author of the Viking majority, was the most vocal advocate for the employer's position that PAGA claims were just like class action claims, and that Concepcion therefore controls (a position he later abandoned in writing the decision). Justice Thomas reminded the parties that he believed the FAA had no application in state court.²⁸ Three of the four remaining conservative Justices—Gorsuch, Kavanaugh, and Barrett—asked relatively few questions, leading many court observers to predict that the United States Supreme Court intended to bless PAGA waivers in a 6-3 decision.²⁹ How wrong they were.

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THE VIKING DECISION: PAGA LIVES TO SEE ANOTHER DAY

On June 15, 2022, the United States Supreme Court issued its decision. The top line was this: Moriana lost in an 8-1 decision, with Thomas in dissent.³⁰ On closer inspection, though, it was clear that the Court had handed employees three significant victories.

First, the Court agreed with Moriana that PAGA actions are materially different from class actions, rejecting Viking's argument that Concepcion controlled.³¹ Only the three Justices who concurred in the result—Barrett, Kavanaugh, and Roberts—would have applied Concepcion to hold, as a matter of FAA preemption, that PAGA waivers are no less enforceable than class action waivers.³²

Second, the Court held that the FAA does not preempt state law rules prohibiting contractual waivers of substantive state-law rights and remedies.³³ Thus, Iskanian's prohibition on "wholesale waiver[s] of PAGA claims" remains intact. This is perhaps Viking's most...