US Supreme Court Transforms PAGA Landscape

On June 15, the US Supreme Court issued its much-anticipated decision in Viking River Cruises, Inc. v. Moriana (“Viking River”).

In an opinion authored by Justice Alito, the Court transformed the relationship between employment arbitration agreements and California’s Labor Code Private Attorney General Act of 2004 (“PAGA”).

Prior to Viking River Cruises, PAGA claims were essentially exempted from otherwise enforceable arbitration agreements. In 2014, the California Supreme Court held, in Iskanian v. CLS Transportation, that PAGA claims could not be sent to arbitration on an individual basis. In the Iskanian court’s view, PAGA claims could not be compelled to arbitration because the real-party-in-interest was the State of California and, the plaintiffs merely stood in the shoes of the State of California. Iskanian also held that this PAGA exemption did not run afoul of the Federal Arbitration Act (“FAA”).  Iskanian reached this result despite prior a US Supreme Court decision (Concepcion v. AT&T Mobility) overruling prior California Supreme Court jurisprudence which essentially barred arbitration agreements that required employees to arbitrate their claims on an individual basis only.

In Viking River Cruises, the Supreme Court rejected Iskanian’s analysis and held that the FAA preempted any prohibition against arbitration agreements requiring employees to arbitrate their individual PAGA claims.

Interestingly, while the Supreme Court held that the FAA did not preempt a rule prohibiting arbitration of representative PAGA claims, it also held that an employee who is required to arbitrate their individual PAGA claims lacks standing to pursue representative PAGA claims in court. This portion of the holding effectively forecloses an employee who is subject to an enforceable arbitration agreement in California to pursue representative PAGA claims.

Employers should closely review their current arbitration agreements to determine if changes needed to be made in light of the Viking River Cruises decision.

Employers should also be on the lookout for a possible response by the California Legislature to address the standing portion of the Viking River Cruises decision.

The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.