On June 15, 2022, in Viking River Cruises, Inc. v. Moriana, the Supreme Court of the United States issued a major win for California employers when it ruled that arbitration agreements are enforceable with respect to claims brought under the California Private Attorneys General Act (“PAGA”).
Under PAGA, an employee is deputized to act as a private attorney general to enforce California labor law and obtain civil penalties, 75% of which goes to the State of California and 25% to the aggrieved employees. Prior California court decisions prohibited the enforcement of arbitration agreements with respect to PAGA claims. The Viking River decision overturned this authority.
First, the Supreme Court held that if an employee has signed a valid arbitration agreement, the Federal Arbitration Act preempts California law and requires the employee’s PAGA claim to be divided into two components: (i) an employee’s individual PAGA claim (i.e., the claim for alleged violations personally sustained by the employee); and (ii) an employee’s non-individual PAGA claim (i.e., the claim for alleged violations sustained by other employees). Previously, California courts had held that a PAGA claim could not be divided in this manner.
Second, the Supreme Court held that because a PAGA claim can be divided, employers who have arbitration agreements with their employees can compel arbitration of an employee’s individual PAGA claims, and the remaining non-individual PAGA claims must be dismissed due to a lack of standing. This means that a properly-drafted arbitration agreement can now be used to avoid a representative PAGA claim seeking relief on behalf of a larger group of employees (i.e., a claim on behalf of a group of aggrieved employees).
In light of Viking River, employers are strongly encouraged to review their arbitration agreements to ensure the agreement maximizes the employer’s ability to limit any dispute to individual claims between the employer and employee. Employers also should review their on-boarding practices, in particular electronic on-boarding, to confirm that secure processes are in place for obtaining and producing a signed copy of an employee’s arbitration agreement in the event a dispute arises.