In a recent 8-1 decision affecting California employers, the United States Supreme Court held that employees bringing suit against their employer for violations of the Labor Code under the Private Attorney General Act (“PAGA”) can be compelled to arbitrate on an individual basis if they have signed an arbitration agreement.
PAGA is a current California law that allows employees to step into the shoes of the State of California and assert statutory penalties against their employer for violations of the California Labor Code on behalf of themselves, and other similarly aggrieved employees. In the Viking River Cruises case, the U.S. Supreme Court was tasked with determining whether a previous California Supreme Court decision in the Iskanian case correctly held that agreements to separately arbitrate or litigate individual PAGA claims for Labor Code violations are invalid.
In its decision, the U.S. Supreme Court found that the California Supreme Court got it wrong, and that PAGA claims can be compelled to arbitration under the Federal Arbitration Act (“FAA”). The U.S. Supreme Court wrote, “We hold that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.”
As a consequence of the plaintiff being required to arbitrate these claims as an individual, they no longer have the proper standing to represent other employees in a “representative” role, and instead may be compelled to arbitrate their claims as an individual. As the U.S. Supreme Court wrote, “[a]s we see it, PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding…a plaintiff can maintain non-individual PAGA claims…only by virtue of also maintaining an individual claim in that action…”
How does this impact my business?
Arbitration agreements which invoke the FAA may now generally be enforced against plaintiffs bringing PAGA claims, provided that agreements are enforceable and do not carve out PAGA claims. Arbitration agreements currently being used by employers should be closely reviewed with counsel to ensure that they are enforceable and do not contain any language which would prevent the employer from enforcing the arbitration agreement against a PAGA claim.
California employers who are not currently using arbitration agreements with employees should consider whether an arbitration agreement now makes sense given the U.S. Supreme Court’s decision. Please contact the attorneys at Sagaser, Watkins & Wieland, P.C. with general questions about your existing arbitration agreements or implementing a new arbitration agreement.