In its much anticipated Viking River Cruises v. Moriana decision, the United States Supreme Court held 8-1 that the Federal Arbitration Act (“FAA”) preempts California law regarding the arbitration of certain claims under the Private Attorneys General Act (“PAGA”).  This means employers may potentially avoid ruinous liability and years of litigation commonplace to PAGA claims.

Background

In 2004, as one of his last acts in office, former California Governor Gray Davis signed PAGA into law.  Under PAGA, California employees may pursue violations of the California Labor Code for themselves individually and as a representative for other employees.  Employees who prevail on their PAGA claims receive 25% of the amounts recovered and their reasonable attorneys’ fees, with the remaining 75% of the amounts recovered going to California’s Labor and Workforce Development Agency.  Due to the representative nature of PAGA claims, awards can be exorbitant.

In Iskanian v. CLS Transportation, the California Supreme Court held that any waiver of an employee’s right to bring representative claims under PAGA is contrary to public policy and unenforceable.  The Iskanian court also held that an employee’s individual PAGA claim may not be arbitrated separately from their representative PAGA claim.

Viking River Cruises v. Moriana

At the beginning of her employment with Viking River Cruises, Angie Moriana signed an arbitration agreement containing a waiver barring any “representative PAGA action.”  Based on the pre-employment waiver Moriana signed, Viking moved to compel her individual claims to arbitration and dismiss her representative PAGA claims on behalf of other Viking employees.  Under Iskanian, the California Court of Appeal affirmed the trial court’s denial of that motion because “PAGA claims cannot be split into arbitrable individual claims and nonarbitrable ‘representative’ claims.”

The United States Supreme Court reversed and remanded, holding that “the FAA preempts” the California Supreme Court’s Iskanian decision to the extent that “it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.”  This meant that Moriana’s individual PAGA claim could be heard and resolved through arbitration.  With Moriana’s individual PAGA claim in arbitration, the Court held that her representative PAGA claims on behalf of other Viking employees should be dismissed.  In other words, instead of being able to sue on behalf of potentially thousands of other employees, a well-crafted arbitration agreement can now limit an employee’s PAGA claim to their individual claim only.

Justice Sotomayor’s Workaround and the Waters Ahead

Viking River Cruises is almost certainly not the end of the story with respect to the enforceability of employee arbitration agreements in California.  In a brief concurrence, Justice Sotomayor agreed with the majority that once an employee’s individual PAGA claim is in arbitration, that individual cannot pursue a representative PAGA action.  However, Justice Sotomayor also noted that the “California Legislature is free to modify the scope of . . . PAGA.”  Of course, even if she had not noted this possibility, the undeniable impact of the Viking River Cruises decision on PAGA claims suggests that we are likely to see efforts by the California Legislature to limit or otherwise frustrate its impact on California law.

In the meantime, however, the Viking River Cruises decision is a significant victory for California employers.  By way of an appropriately drafted agreement, employees can agree to waive both class action and representative PAGA claims against their employers, and have their individual wage and hour as well as PAGA claims decided in arbitration.  All California employers should consider implementing and/or revising arbitration agreements, as they can potentially avert multi-million dollar wage and hour claims with the stroke of a pen – at least for now.

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