The U.S. Supreme Court Allows Mandatory Arbitration in PAGA Claims

Recently, the U.S. Supreme Court (the Supreme Court) ruled in favor of Viking River Cruises Inc. regarding lawsuits under California’s Private Attorneys General Act of 2004 (PAGA), allowing mandatory arbitration in PAGA claims. The Supreme Court’s decision gives California employers the right to enforce arbitration agreements with aggrieved employees filing suit under PAGA. This is the Supreme Court’s first time considering PAGA. Significantly, their decision reverses California’s legal precedent on the matter. In other laws affecting arbitration clauses, President Joseph R. Biden signed a bill to end forced arbitration of sexual assault cases earlier this year.

Overview of PAGA

Under PAGA, aggrieved employees in California can file lawsuits to recover civil penalties on behalf of themselves, other employees, and State of California Labor Code violations. PAGA allows workers to file lawsuits on behalf of the California Attorney General. In other words, aggrieved employees may pursue civil penalties as if they were a state agency. PAGA claims represent a type of law enforcement action rather than a compensatory lawsuit. Default penalties in such claims are:

• $100 per pay period for each aggrieved employee under the initial violation
• $200 per pay period for each aggrieved employee for each subsequent violation

Background of the Case

Previously, the plaintiff Angie Moriana filed suit in California state court against the employer Viking River Cruises (the defendant). The lawsuit alleged several California Labor Code and state wage and hour law violations. Subsequently, the defendant moved to compel arbitration. They argued that Moriana signed an employment agreement containing an arbitration clause. However, the state court denied Viking’s motion. Later, the California Court of Appeal affirmed the previous state court’s decision to preclude arbitration in PAGA claims. Meanwhile, the California Supreme Court denied a review.

Allowing Arbitration in PAGA Claims

In Viking River Cruises, Inc. v. Moriana, No. 20-1573, the Supreme Court held that the Federal Arbitration Act (FAA) waives an employee’s right to bring individual claims under PAGA. The FAA allows U.S. employers to settle disputes through arbitration as a part of an employment contract rather than in a court of law. The Supreme Court maintained that FAA preempts California’s PAGA law. Therefore, the Supreme Court confirmed that affected employers might enforce arbitration clauses in such cases. In conclusion, the plaintiff must move her claims to arbitration. What’s more, since Moriana’s individual claims will now move to arbitration, she lacks standing to bring PAGA claims on behalf of other employees. Accordingly, the Supreme Court held that those claims should be dismissed.

Employer Takeaways

Allowing arbitration in PAGA claims is a significant decision for employers in California. The Supreme Court’s decision affirms that employers may use existing arbitration clauses to limit liability in PAGA claims. California employers with arbitration agreements should update such agreements to reflect the recent decision. However, they should take care not to waive PAGA claims in general. The decision only applies to arbitration in PAGA claims. Furthermore, to help guard against costly litigation in the first place, employers should comply with federal and state labor laws. Employers may demonstrate good-faith compliance by displaying required labor posters in places employees frequent.