On Wednesday, June 15, 2022, the United States Supreme Court issued an opinion that severely limits California’s right to enlist employees as private attorneys general to enforce California labor law by allowing employers to use mandatory arbitration provisions to defeat such representative claims.
California’s Private Attorneys General Act of 2004, Cal. Lab. Code § 2698 et seq. (“PAGA”), authorizes “any ‘aggrieved employee’ to initiate an action against a former employer ‘on behalf of himself or herself and other current or former employees to obtain civil penalties that previously could have been recovered only by the State in a Labor and Workforce Development Agency (LWDA) enforcement action.” See Viking River Cruises, Inc. v. Moriana, No. 20-1573, 2022 U.S. LEXIS 2940, *9 (June 15, 2022) (citing Cal. Lab. Code Ann. 2699(a)). Under PAGA, “[a]n employee who alleges he or she suffered a single violation is entitled to use that violation as a gateway to assert a potentially limitless number of other violations” suffered by other employees in a representative action. Id. at *12.
In Viking River Cruises, Inc. v. Moriana, employee Angie Moriana “executed an agreement to arbitrate any dispute arising out of her employment” when she started as a sales representative. The agreement also contained a “Class Action Waiver” providing that the parties could not bring any class action, collective action, or representative PAGA action in arbitration. Id. at *13. Moriana filed a PAGA action against Viking in California Court alleging Viking failed to provide her with her final wages within 72 hours. Id. She also asserted a wide array of other labor law violations on behalf of other employees through a representative PAGA claim. Id. Viking moved to compel arbitration of Moriana’s “individual” PAGA claim. Id. The trial court denied the motion and the appellate court affirmed. Id. at 14.
The United States Supreme Court reversed, stating that the individual PAGA claim could be divided from the representative claims under the Federal Arbitration Act. Id. at *29. The Court reasoned that “state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.” Id. at 30. The Court noted that this limited PAGA claims because “[w]hen an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” Id. at 34. “As a result Moriana lack[ed] statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.” Id.
This delivers a severe blow to Plaintiffs’ firms that use PAGA claims to bring representative claims accusing companies of multiple violations that affected hundreds or even thousands of employees based on one employee’s claim of a labor code violation. California employers can now force the individual claims to arbitration, leaving the others to be dismissed. Notably, Judge Sotomayor in her concurrence noted that the “California Legislature is free to modify the scope of the statutory standing under PAGA within state and federal constitutional limits.” Id. at 36. As such, the law could still change. However, for now, employers should be aware of their ability to include PAGA claims in arbitration agreements, and possibly avoid representative PAGA collective actions based on alleged labor law violations.
If you have any questions about this decision or the use of mandatory arbitration agreements, please contact the author of this blog or a member of Dykema’s Labor and Employment practice group.