U.S. Supreme Court Finds the FAA Preempts PAGA and Holds Individual PAGA Claims Can Be Compelled to Arbitration

On June 15, 2022, the United States Supreme Court rendered an opinion in Viking River Cruises, Inc. v. Moriana that will have significant consequences for California employers and claims made under the Private Attorneys General Act of 2004 (“PAGA”). The issue reviewed by the Court was the rule announced by the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, stating that arbitration agreements that purport to waive an employee’s right to bring a claim on behalf of others under PAGA are unenforceable. The Supreme Court held in Viking River Cruises that the FAA in fact preempts the rule pronounced in Iskanian to the extent it prevents the division of PAGA actions into individual and non-individual (representative) claims through an agreement to arbitrate. In other words, under Viking River Cruises, arbitration agreements can be used to compel the individual portion of a PAGA claim to arbitration and dismiss the representative or non-individual portion of any PAGA action.

Angie Moriana filed a PAGA action against her former employer, Viking River Cruises asserting that the company violated the California Labor Code by failing to provide her with her final wages in a timely manner. She also claimed Viking committed additional wage and hour violations which affected other Viking employees. However, Moriana’s employment contract with Viking contained a mandatory arbitration agreement that included a waiver of class action claims. The waiver purported to preclude any representative action under PAGA from being asserted in arbitration. Viking therefore moved to compel arbitration of Moriana’s individual PAGA claim and to dismiss her other, non-individual PAGA claims asserted on behalf of other employees. Relying on Iskanian, the California courts denied the motion, holding that wholesale waivers of PAGA claims in arbitration agreements cannot be used to split the action into arbitrable individual claims and non-arbitrable representative claims. The Supreme Court granted certiorari to determine whether the FAA preempts the rule set forth in Iskanian.

Viking argued the Iskanian rule was preempted by the FAA, and compared PAGA actions to class and collective actions. Although the Court ultimately decided, by an 8-1 majority, that a conflict existed between Iskanian and the FAA, it ultimately rejected Viking’s argument and characterization of the conflict. The Court noted that none of the complexity of typical class actions exist in a PAGA case, where class certification is not required. The Court also rejected Moriana’s characterization of PAGA actions as a single cause of action filed by a private individual rather than by the state. Instead, the Court described PAGA as possessing a “built-in mechanism of claim joinder” enabling a private individual to join claims of other employees and pursue penalties on behalf of the state.

According to the Court, the conflict between the FAA and Iskanian therefore arose out of this joinder mechanism, because the Iskanian rule effectively prohibited parties from agreeing to arbitrate individual PAGA claims as a result of their ability to join the non-individual claims to the action. The Court stated, “[i]f the parties agree to arbitrate ‘individual’ PAGA claims based on personally sustained violations, Iskanian allows the aggrieved employee to abrogate that agreement after the fact and demand either judicial proceedings or an arbitral proceeding that exceeds the scope jointly intended by the parties.” The Court therefore held the FAA preempts Iskanian to the extent it precludes the division of PAGA actions into arbitrable individual claims and non-arbitrable representative claims.

The Court further concluded that Viking was entitled to arbitrate Moriana’s individual PAGA claims, which also meant Moriana was unable to continue to litigate the non-individual claims on behalf of others, because PAGA requires the named plaintiff to be an “aggrieved employee.”

Consequently, employers now faced with PAGA actions may, pursuant to Viking River Cruises, seek to compel arbitration with respect to a plaintiff’s individual PAGA claims and seek the dismissal of non-individual PAGA claims if the employer has a California-compliant arbitration agreement with an applicable waiver provision. However, further litigation and/or legislative action may continue to impact this rule.

This document is intended to provide you with information about employment and labor law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.

June 17, 2022