Mcle Self-study: U.s. Supreme Court Provides Long-awaited Clarification on Arbitrability of Paga Actions in Viking River Cruises

• Publication year: 2022
• Author: Elena Baca

MCLE SELF-STUDY: U.S. SUPREME COURT PROVIDES LONG-AWAITED CLARIFICATION ON ARBITRABILITY OF PAGA ACTIONS IN VIKING RIVER CRUISES

AUTHORS^*

Elena Baca

Ryan Derry

INTRODUCTION

In June 2022, the United States Supreme Court provided much needed clarity regarding the arbitrability of Private Attorneys General Act (PAGA)¹ claims in Viking River Cruises, Inc. v. Moriana.² In a nearly unanimous decision, the Court held that the Federal Arbitration Act (FAA)³ preempts the California Supreme Court's decision in Iskanian v. CLS Transportation Los Angeles, LLC⁴ in part. The Court explained that PAGA actions are severable into individual and non-individual claims, and employees with arbitration agreements must pursue their individual

PAGA claims in arbitration consistent with the terms of their arbitration agreements. The Court further held that arbitration agreements cannot foreclose non-individual representative claims, but those claims nevertheless should be dismissed for lack of standing once individual claims are sent to arbitration.

The Court's decision marks a big win for employers, and precludes employees from flouting agreements to arbitrate claims by pursuing a claim under PAGA. The decision reinforces employers' and employees' contractual rights to agree to bilateral individual arbitration, and is consistent with the FAA's purpose to ensure that arbitration agreements are enforced pursuant to their terms.⁵ It also functionally puts an end to challenges to Iskanian, which have been repeatedly raised since the California Supreme Court issued that decision.⁶

BACKGROUND

The FAA, enacted in 1925, was designed "to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate."⁷ The FAA's principal purpose is to "ensur[e] that private arbitration agreements are enforced according to their terms."⁸

The United States Supreme Court has repeatedly supported the enforceability of arbitration agreements under the FAA, directing courts to "rigorously enforce arbitration agreements according to their terms[.]"⁹ For example, the Court has held that the FAA preempts state laws prohibiting class action waivers;¹⁰ that arbitration agreements requiring waiver of class and collective actions are enforceable under the FAA and are not precluded by the National Labor Relations Act;¹¹ and that arbitration on a class basis cannot be compelled absent unambiguous consent.¹²

Enacted in 2004, PAGA authorizes employees to file lawsuits and recover civil penalties for violations of the California Labor Code, which are otherwise only recoverable by the State, from an employer, "on behalf of himself or herself and other current or former employees."¹³Questions regarding arbitrability of such representative PAGA claims followed. A decade after PAGA was first passed, those questions came to a head in Iskanian. There, the California Supreme Court declined to enforce an employee's arbitration agreement containing a waiver of representative PAGA claims, declaring it contrary to public policy. The Court explained that PAGA claims-unlike class actions-belong to the State and not an individual plaintiff employee who is pursuing the action. Accordingly, the Court held the FAA did not preempt California's prohibition against PAGA waivers.¹⁴ A year later, a divided panel of the Ninth Circuit, in Sakkab v. Luxottica Retail North America, Inc., agreed with Iskanian, holding the Iskanian rule "does not stand as an obstacle to the [ ] FAA's objective."¹⁵

Following Iskanian and Sakkab, PAGA filings across California increased exponentially.¹⁶ In 2005, plaintiffs filed just over 700 PAGA lawsuits.¹⁷ By 2017, two years after Sakkab and Iskanian, the number of PAGA notices filed with the Labor and Workforce Development Agency (LWDA) had increased to 4,984.¹⁸ In 2021, the number of PAGA notices had increased again to 6,502.¹⁹ Small and mid-size businesses have borne the primary brunt of PAGA lawsuits.²⁰ In addition, without the additional procedural steps required of class action litigants,²¹ PAGA has been a vehicle to leverage claims against employers—resulting in billions in civil penalties to the LWDA and allegedly aggrieved employees.²²

Against this backdrop, in Viking River Cruises, the United States Supreme Court agreed to hear California employers' repeated calls for clarity regarding inherent inconsistencies between Iskanian and the FAA.

THE COURT'S HOLDING

In its 8-1 majority ruling, the U.S. Supreme Court in Viking River Cruises held the FAA preempts Iskanian to the extent it precludes division of a PAGA action into an individual PAGA claim subject to arbitration and a non-individual claim brought as a representative on others. The Court, however, stated that wholesale waivers of employee rights to bring a PAGA claim remain invalid.

The Court held that Viking River Cruises was entitled to compel Moriana's individual PAGA claim to arbitration, consistent with the terms of the arbitration agreement. The Court explained that PAGA fails to provide a mechanism to adjudicate non-individual PAGA claims once an individual claim is compelled to arbitration. Thus, the Court dismissed Moriana's non-individual (representative) claims, finding she lacked standing to maintain them in court.²³ Once her own purported injury was compelled to arbitration, she would lack any personal interest in the representative claims.

CONTINUING PAGA LEGAL CHALLENGES

Since June 2022, the legal wrangling and plaintiffs' ongoing efforts to insulate themselves from the impact of Viking River Cruises and the efficiencies of arbitration has continued.

Immediately, Moriana sought rehearing of Viking River Cruises, filing a petition on July 6, 2022. The Supreme Court denied her request.²⁴

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More broadly, with respect to already pending PAGA cases, many plaintiffs have claimed their employers had waived their right to arbitrate. That an employer could waive a right that did not clearly exist until the Supreme Court rendered its decision is unconvincing. Indeed, the California Supreme Court rejected a nearly identical argument in Iskanian. There, the California Supreme Court concluded there is no waiver when a party seeks to enforce their arbitration rights upon...