In an 8 to 1 opinion issued on June 15, 2022, the U.S. Supreme Court held in Viking River Cruises, Inc. v. Moriana that under the Federal Arbitration Act (FAA), employment contract arbitration provisions requiring the arbitration of individual California Private Attorneys General Act (PAGA) claims are enforceable. More specifically, the high court held that the FAA preempts California courts from requiring a mandatory joinder of PAGA claims into a purely representative proceeding that forecloses the arbitration of individual PAGA claims.
ALF submitted a merits-stage amicus brief in Viking River, authored by Felix Shafir and his colleagues at Horvitz & Levy LLP, arguing that the FAA requires private arbitration agreements—including those that contain waivers of the right to bring class actions or other types of representative actions—to be enforced as written. Mr. Shafir also submitted on behalf of ALF and the Washington Legal Foundation a petition-stage amicus brief in Coverall North America, Inc. v. Rivas, No. 21-268, a case which raises the same FAA preemption issue. The Court presumably will remand Coverall back to the Ninth Circuit for further consideration in light of the Viking River decision.
PAGA permits an aggrieved employee to bring an action on behalf of current or former employees to recover civil penalties for wage-related violations of California’s Labor Code. Until now, California state courts have insisted that PAGA claims are representative in nature and cannot be divided into individual and representative components. Moreover, California state courts have held that state law prohibits the waiver of representative PAGA claims in all forums, and that this rule is not preempted by the FAA. The California state courts’ reasoning has been that PAGA claims fall outside the FAA’s scope because they are public law enforcement claims, brought by plaintiffs acting as proxies for state labor law enforcement agencies, rather than private disputes.
The court determined that although PAGA authorizes aggrieved employees “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” and while California law “prohibits parties from contracting around this joinder device” via an arbitration agreement, the FAA preempts this “prohibition on contractual division of PAGA actions into constituent claims . . . .” The court arrived at this conclusion because California law cannot require parties “to either go along with an arbitration to which the range of issues under consideration is determined by coercive joinder, or else forego arbitration altogether.”
The FAA therefore preempts California law “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” In reaching this decision, the U.S. Supreme Court rejected the California Supreme Court’s view that public law enforcement actions fall outside the FAA’s scope, explaining: “[Re]gardless of whether a PAGA action is in some sense also a dispute between an employer and the State, nothing in the FAA categorically exempts claims belonging to sovereigns from the scope” of the FAA.
The high court also held that, under California law, representative PAGA claims must be dismissed where PAGA plaintiffs are compelled to arbitrate their individual PAGA claims, since PAGA contains no provision vesting PAGA plaintiffs with statutory standing to assert representative PAGA claims under those circumstances.