On June 15, the Supreme Court issued its decision in Viking River Cruises, Inc. v. Moriana, No. 20-1573, holding that the Federal Arbitration Act (“FAA”) requires California courts to honor agreements to arbitrate individual claims under the California Labor Private Attorneys General Act of 2004, Cal. Lab. Code § 2698 et seq. (“PAGA”). Although Viking River Cruises is a significant win for California employers, it remains to be seen whether and to what extent the full scope of that win will be durable.
Background. PAGA authorizes an “aggrieved employee” to bring an action to recover “on behalf of himself or herself and other current or former employees” any civil penalties the State could have recovered for violations of its Labor Code. Id. § 2699 (a). The aggrieved employee may seek penalties not only for injuries he or she suffered, but also for Labor Code violations allegedly inflicted against other employees. If the aggrieved employee succeeds in this “private attorney-general” action, aggrieved employees can obtain one-quarter of the eventual recovery, with the remaining three-quarters paid to the State. Id. § 2699 (i).
When respondent Angie Moriana went to work for petitioner Viking River Cruises, Inc. (“Viking”), she agreed to submit disputes arising out of her employment to binding arbitration and waived the right to bring a class, collective, representative, or private attorney-general action. Moriana subsequently sued Viking under PAGA, asserting injuries to herself and other Viking employees arising from violations of the Labor Code. Viking moved to enforce the arbitration agreement. The trial court denied the motion, and the California Court of Appeal affirmed, relying on decisions holding that an employee cannot waive the right to bring PAGA actions and that a PAGA claim cannot be split between “individual” claims alleging Labor Code violations against the plaintiff. The employee herself and the “representative” claims alleging that the employer harmed other employees. See, eg, Iskanian v. CSL Transp. LA LLC, 327 P.3d 129 (2014). The California Supreme Court denied review.
The Decision. In an 8-1 decision, the Supreme Court reversed and remanded to the California courts, ordering Moriana’s individual PAGA claim to arbitration and her representative PAGA claims on behalf of other employees dismissed.
Writing for five Justices (and in part for three more), Justice Alito explained that under the Court’s precedents, the FAA preempts not only those state laws that discriminate on their face against arbitration, but also those that would have the effect of imposing procedural requirements. on arbitration that are “inconsistent with the individualized and informal mode of arbitration contemplated by the FAA” (for example, by requiring class arbitration). Drawing on those precedents, Viking argued that the FAA preempted California’s Iskanian rule prohibiting parties from waiving the right to bring PAGA actions. This was because, Viking argued, PAGA actions necessarily entailed the plaintiff’s representation of other parties, so preventing parties from waiving the right to bring PAGA actions in arbitration effectively required them to arbitrate on other than a strictly “bilateral” plaintiff-versus-defendant basis. . The Court held that Viking’s argument went too far, pointing out that arbitration readily accommodates many non-bilateral situations (such as those involving a claim asserted by an agent on behalf of a principal).
The Court instead located a conflict between the FAA and two other provisions of California law: PAGA’s requirement that an aggrieved employee can sue over Labor Code violations involving other employees, and the rule against splitting individual and representative PAGA claims in different forums. Together, those rules had the practical effect of forcing employers to choose between eschewing all arbitration of PAGA claims, including those relating to the plaintiff’s own alleged injuries, or agreeing to arbitration of claims brought for the injuries of others as well, even though such collective. litigation is ill-suited to arbitration. Consent, the Court emphasized, is the critical consideration under the FAA, and the parties have the right to consent to arbitration of individual claims without being forced to arbitrate collective claims as well.
In light of its holding that the FAA did not entirely preempt California’s Iskanian The rule, the Court concluded that Moriana’s and Viking’s arbitration agreement was indeed invalid to the extent the agreement could be “construed as a wholesale waiver of PAGA claims,” including her own individual claim. But the arbitration agreement also contained a severability clause providing that any valid “portion” of the waiver must be “enforced in arbitration” even if the waiver was invalid in other respects. The severability clause entitled Viking to compel arbitration of Moriana’s individual PAGA claim, and the FAA preempted the state-law rule that precluded arbitration of individual claims if representative PAGA claims could not also be arbitrated. The Court thus ordered Moriana’s individual PAGA claim to be sent to arbitration.
That left only the question of “what the lower courts should have done with Moriana’s non-individual claims.” Under Iskanian, the parties’ arbitration agreement could not bar Moriana from raising those claims in any forum. But because state law did not give Moriana standing to litigate PAGA claims involving violations concerning other employees in court when her own individual claim was being resolved in another forum, the court ordered the representative claims to be dismissed.
Justice Sotomayor filed a concurring opinion in which she suggested that the California courts or State Legislature could authorize employees to pursue representative PAGA actions to address injuries to others in state court notwithstanding the commitment of their own individual claims to arbitration. Justice Barrett, joined in full by Justice Kavanaugh and in part by the Chief Justice, concurred in part, declining to join the majority’s discussion of why the FAA did not preempt the Iskanian rule wholesale or what should happen to the non-individual claims on remand. Justice Thomas dissented, noting his longstanding view that the FAA does not apply to state-court proceedings.
Takeaways. For now, Viking River Cruises is a significant victory for employers seeking to enforce employment arbitration agreements. Despite increasing hostility to preemption in other contexts, the Court was nearly unanimous in reaffirming that the FAA preempts not only state laws that discriminate against arbitration on their face, but also those that have the effect of thwarting enforcement of arbitration agreements.
California employers will specifically benefit from Viking River Cruises‘Correction of California courts’ categorical refusal to enforce agreements to arbitrate individual PAGA claims. Although the Court stopped short of holding that the FAA preempts California’s Iskanian rule outright, its decision has the practical effect of preventing plaintiffs who are subject to valid arbitration agreements from asserting non-individual PAGA claims. Significantly, the ultimate result relied heavily on the severability clause of the parties’ agreement, as it allowed the invalid contractual bar to Moriana’s ability to bring “representative” PAGA claims to be severed, allowing enforcement of her agreement to arbitrate individual PAGA claims. The representative claims then failed solely because of her lack of standing to bring them in a separate proceeding. Employers hoping to achieve the same outcome should consider reviewing their employment arbitration agreements to ensure that those agreements contain appropriately worded severability provisions. Because the question of who has statutory standing to assert PAGA claims in state court on behalf of third-parties is primarily one of state law, Viking River Cruises may not be the last word on the ability of employees with valid arbitration agreements to pursue PAGA representative claims in court. Justice Sotomayor’s concurrence suggests that state courts or the Legislature could address that issue by adjusting the standing requirement for representative claims. For now, however, Viking River Cruises reinstates arbitration as an effective bar against any assertion of PAGA claims other than arbitration of individual claims if the plaintiff employee is subject to a properly worded arbitration agreement.