Representative Private Attorneys General Act (\u201cPAGA<\/u>\u201d) claims can be divided between arbitrable individual claims and non-arbitrable representative claims the United States Supreme Court said today in a significant decision likely to have a major impact on California employers.<\/p>\n
The Laws at Issue<\/strong><\/p>\n The Court\u2019s holding in Viking River Cruises, Inc. v. Moriana<\/em> rests on the interplay between PAGA, a California law; the FAA, a federal law; and Iskanian<\/em>, a California Supreme Court decision.<\/p>\n PAGA creates a private cause of action for collection of civil penalties previously only enforceable by the State.\u00a0 Prior to PAGA\u2019s enactment, only California\u2019s Labor and Workforce Development Agency (\u201cLWDA<\/u>\u201d) could bring actions for civil penalties against employers for violations of California Labor Code.\u00a0 In 2004, the Legislature enacted the PAGA, which allows \u201caggrieved employees\u201d to bring such enforcement actions on behalf of the state.\u00a0 PAGA allows an aggrieved employee to collect civil penalties for violations of the Labor Code that they themselves allegedly experienced, as well as for violations sustained only by \u201cother current or former employees.\u201d\u00a0 The scopes of such PAGA suits are enormous and often seek millions of dollars in civil penalties.<\/p>\n The Federal Arbitration Act (\u201cFAA<\/u>\u201d) is a federal law that makes arbitration agreements \u201cvalid, irrevocable, and enforceable\u201d and which \u201cpreempts any state rule discriminating on its face against arbitration.\u201d \u00a0Under the FAA, arbitration is considered a matter of consent, and parties are generally free to decide the rules by which they will arbitrate and the issues that will be arbitrated.\u00a0 Thus, state rules cannot require <\/em>arbitration of a claim, issue, or dispute outside the consent of the parties.<\/p>\n The California Supreme Court\u2019s decision in Iskanian<\/em> discussed the interplay between PAGA and the FAA.\u00a0 The relevant issue involved an arbitration agreement that contained a \u201cclass action waiver,\u201d by which the employee agreed to submit all disputes to arbitration on an individual basis and to waive any right to a representative action before the arbitrator.\u00a0 Pursuant to that agreement, the employer sought to compel the individual portion of the plaintiff\u2019s PAGA claim to arbitration\u2014i.e., the portion based solely on Labor Code violations experienced by the plaintiff.\u00a0 The Iskanian<\/em> Court determined the individual portion could not be compelled pursuant to the waiver because such a waiver is not enforceable as to a PAGA action.\u00a0 The crux of the Court\u2019s reasoning was that a PAGA claim cannot be divided into arbitrable individual claims and non-arbitrable representative claims because the action is a single claim for civil penalties brought entirely on behalf of the state.\u00a0 As such, Iskanian<\/em> held that either the entire PAGA claim had to be tried in court or sent to arbitration.\u00a0 Any waiver as to the non-individual portion was unenforceable.\u00a0 The United States Supreme Court today disagreed.<\/p>\n Facts of Viking River Cruises<\/em><\/strong><\/p>\n Angie Moriana (\u201cMoriana<\/u>\u201d) was a former employee of Viking River Cruises, Inc. (\u201cViking<\/u>\u201d).\u00a0 As part of her employment contract, she signed an agreement to arbitrate any dispute arising out of the contract.\u00a0 That agreement contained a \u201cclass action waiver\u201d by which the parties agreed they could not bring any dispute into arbitration as a class, collective, or representative PAGA action.\u00a0 The agreement stated that if the class action waiver was found invalid, any representative action would proceed in court, but it also contained a \u201cseverability clause\u201d which provided that if any \u201cportion\u201d of the arbitration agreement was found valid, it would be enforced in arbitration.<\/p>\n After her termination, Moriana brought a PAGA action against Viking.\u00a0 Moriana asserted a sole violation of the California Labor Code as against her but also a \u201cwide array\u201d of other alleged violations sustained by other Viking employees.\u00a0 Viking moved to compel arbitration of the \u201cindividual\u201d portion of Moriana\u2019s PAGA claim.\u00a0 The trial court denied the motion (and the Court of Appeal affirmed), basing its ruling on the California Supreme Court\u2019s opinion in Iskanian, <\/em>which held that PAGA claims cannot be split into arbitrable individual claims and non-arbitrable representative claims.<\/p>\n The United States Supreme Court Holds PAGA Claims Are Divisible.<\/strong><\/p>\n The United States Supreme Court reversed the Court of Appeal, holding the portion of Iskanian<\/em> dealing with the indivisibility of individual portions of a PAGA claim is preempted by the FAA. \u00a0In so finding, the Court rejected the argument that each PAGA cause of action is a singular claim:\u00a0 \u201c[A] PAGA action asserting multiple code violations affecting a range of different employees does not constitute \u2018a single claim\u2019 in even the broadest possible sense, because the violations asserted need not even arise from a common \u2018transaction\u2019 or \u2018nucleus of operative facts.\u2019\u201d\u00a0 Rather, the Court cited to California precedent for the view that PAGA is a procedural mechanism that \u201cpermits \u2018aggrieved employees\u2019 to use the Labor Code violations they personally suffered as a basis to join to the action any claims that could have been raised by the State in an enforcement proceeding.\u201d<\/p>\n Within that backdrop, the Court explained that any prohibition on the ability of parties to divide a PAGA action into constituent claims \u201cunduly circumscribes the freedom of parties to determine \u2018the issues subject to arbitration and \u2018the rules by which they will arbitrate.\u2019\u201d\u00a0 In effect, the Iskanian<\/em> indivisibility rule forces parties that wish to arbitrate PAGA claims to submit to the State\u2019s expansive rules regarding joinder of claims pertaining to other aggrieved employees.\u00a0 In other words, \u201c[t]he only way for parties to agree to arbitrate one of an employee’s PAGA claims is to also \u2018agree\u2019 to arbitrate all other<\/em> PAGA claims in the same arbitral proceeding.\u201d\u00a0 Such a coercive result is \u201cincompatible with the FAA,\u201d and is therefore preempted by it.\u00a0 Accordingly, parties may agree to arbitrate individual portions of the FAA as part of a valid arbitration agreement.<\/p>\n The Court further explained that once a plaintiff\u2019s individual PAGA claims are sent to arbitration, the \u201crepresentative\u201d claims remaining in Superior Court (brought as to Labor Code violations sustained by other employees) must be dismissed.\u00a0 The Court held that \u201c[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.\u201d<\/p>\n In sum, the Court held: (1) employees may agree to arbitrate PAGA claims on an individual basis, (2) where such an agreement has been made, the individual component of any PAGA claim\u2014i.e., the portion based on violations of the Labor Code actually endured by the plaintiff\u2014must be separated from the \u201crepresentative\u201d portion and sent to arbitration, and (3) the \u201crepresentative\u201d portion of the PAGA claim must be dismissed for lack of statutory standing.<\/p>\n Viking River Cruises<\/em> Limitations <\/strong><\/p>\n \u00a0<\/strong>There are two limitations to the holding in Viking River Cruises<\/em>:<\/p>\n First<\/u><\/em>, the Court did not overrule the portion of Iskanian<\/em> that held waivers as to the entire<\/u> right to a PAGA claim (as opposed to just the non-individual portion) are unenforceable.\u00a0 The waiver in Viking River Cruises<\/em> indeed had such a blanket waiver.\u00a0 However, it was saved by a \u201cseverability clause\u201d that provided \u201cif the waiver provision is invalid in some respect, any \u2018portion\u2019 of the waiver that remains valid must still be \u2018enforced in arbitration.\u2019\u201d\u00a0 The Court held such a severability clause would save the waiver provision, but, without it, the agreement would have been unenforceable because it waived a \u201csubstantive right\u201d in its entirety.<\/p>\n Second<\/u><\/em>, in a concurring opinion, Justice Sotomayor left open the possibility that the California courts or Legislature may decide differently with respect to the Court\u2019s final point on dismissal of the representative claims: \u201cOf course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word. \u00a0Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits.\u201d \u00a0This roadmap for the Legislature will likely lead to a modification of the PAGA standing requirements soon and therefore the Viking River Cruises holding\u2019s respite for California employers may be short-lived.<\/p>\n Takeaways for California Employers<\/strong><\/p>\n For now, California employers should review their arbitration agreements to confirm that their agreements are compliant with Viking River Cruises<\/em>.<\/p>\n Employers should also be aware that, as Justice Sotomayor cautioned, the California courts or the California Legislature may take action in the future to chip away at this holding.\u00a0 Specifically, the legislature may add additional procedural protections to PAGA or amend the statutory standing requirements.<\/p>\n <\/p>\n This article is for general information only and should not be relied upon as legal advice.\u00a0 Attorney advertising.<\/p>\n","protected":false},"excerpt":{"rendered":" Representative Private Attorneys General Act (\u201cPAGA\u201d) claims can be divided between arbitrable individual claims and non-arbitrable representative claims the United States Supreme Court said today in a significant decision likely to have…<\/p>\n","protected":false},"author":47,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[9],"tags":[],"coauthors":[291,292],"class_list":["post-9329","post","type-post","status-publish","format-standard","hentry","category-attorney-articles","attorney-kyle-w-nageotte","attorney-steven-m-brunolli","practice-employment-law"],"acf":[],"yoast_head":"\n