News & Updates: In Viking River Cruises, Supreme Court Bids Farewell To PAGA Arbitration Limitations

California employers rejoice. The United States Supreme Court, in its decision in Viking River Cruises v. Moriana, held that claims under California’s Private Attorneys General Act (“PAGA”) can be compelled to arbitration on an individual basis – reversing a key part of a prior California Supreme Court ruling, and dramatically reducing the potential PAGA penalties for employers who have enforceable arbitration agreements.   

As a refresher, PAGA allows employees to step into the shoes of the state of California and bring representative claims as “private attorneys general” to recover penalties for violations of California labor laws. Critically, PAGA authorizes recovery of penalties for violations suffered not only by the individual employee who brings the claim, but also for violations against “other current or former employees.”  By authorizing individual employees to seek penalties on behalf of others, PAGA operates somewhat similarly to a class action, and allows for potentially very large, multi-million penalty awards.

Prior to 2014, employers and employees frequently entered into arbitration agreements specifying that PAGA claims would be subject to arbitration on an individual basis. In other words, under the arbitration agreement, the employee would waive the right to bring PAGA claims on behalf of others, and any PAGA arbitration would be limited to determining if the employee was entitled to penalties for violations that they themselves personally suffered.  

 In 2014, however, the California Supreme Court, in Iskanian v. CLS Transportation Los Angeles, 59 Cal. 4^th 348 (2014), held that employees cannot waive the right to bring PAGA claims on a “collective” basis (that is, on behalf of others).  The practical effect of this was that arbitration agreements with waivers of the right to bring class or collective actions were of limited utility when it came to defending alleged Labor Code violations (such as minimum wage, overtime, or meal and rest breaks). While the class action waiver was enforceable, the employee could simply tack on PAGA claims and force at least that part of the action forward on a collective basis, usually in civil court. But no more.  

In the Viking decision, the Court held that, contrary to Iskanian, an enforceable arbitration agreement can require the parties to arbitrate PAGA claims on an “individual basis.”  The Court also held that employees who enter into such an agreement cannot bring collective or representative PAGA claims on behalf of other employees.  While the decision is highly technical, the practical effect for California employers is significant: members of the plaintiffs’ bar typically seek millions of dollars in penalties when bringing PAGA actions on a “collective” basis, while the maximum potential penalties for “individual” PAGA claims are typically a few thousand dollars or so. This means that arbitration agreements with class and collective PAGA waivers now can dramatically minimize exposure in wage-and-hour actions. 

One note of caution: a concurring opinion by Justice Sotomayor left the door open for the California Supreme Court or the California Legislature to clarify or modify certain aspects of California law and thereby allow employees to bring collective PAGA claims in court, notwithstanding an arbitration agreement.   But for now, California employers can breathe a sigh of relief. 

Another implication of this case is still unknown. The Ninth Circuit is set to issue a decision in Chamber of Commerce v. Bonta, which deals with the enforceability of AB 51. AB 51 prohibits mandatory arbitration agreements as a condition of employment, a provision that challengers argue conflicts with the Federal Arbitration Act. A Ninth Circuit panel initially determined that this provision could go into effect – but the law is pending the full court’s review. A final decision was stayed in anticipation of the Viking River Cruises opinion. Now that the Viking River Cruises decision has been issued, employers should expect another major decision impacting arbitration agreements very soon – whether such agreements in California can be mandatory or must be voluntary. 

We encourage you to consult with counsel promptly to consider the pros and cons of an arbitration agreement in light of this important decision.