On March 30, 2022, the United States Supreme Court heard oral arguments that Labor Code sections 2698-2699.5, the California law that permits employees to file Private Attorney General Actions (PAGA) in the public interest on behalf of the State, is preempted by the Federal Arbitration Act (FAA). In Viking River Cruises, Inc. v. Moriana, Moriana filed a lawsuit against Viking River Cruises alleging PAGA claims including a failure to pay wages. Moriana signed an arbitration agreement that precluded class action and collective claims including those brought under PAGA. Notwithstanding the arbitration agreement, Moriana filed suit under PAGA, seeking remedies on behalf of the State for alleged labor law violations. Established California law, Iskanian v. CLS Transportation Los Angeles, LLC states that employees cannot waive their individual right to bring these claims or compel arbitration. California is the only state that has such a law allowing these public interest claims.
In oral argument, Viking River Cruises emphasized United States Supreme Court precedent which confirms that when parties agree to resolve their disputes by bilateral arbitration, those agreements are fully enforceable under the FAA and preclude class or collective actions. Viking River Cruises discussed the similarities between PAGA actions and class actions and collective actions, particularly the notion that the plaintiff seeks to aggregate and adjudicate alleged violations of the Labor Code of a large number of other employees. Viking River Cruises argued that such actions are inconsistent with the parties’ agreement to arbitrate claims bilaterally on an individual basis, thereby triggering preemption under the FAA.
Justices Breyer, Kagan, and Sotomayor pressed Viking River Cruises during arguments, expressing concern that by agreeing to bilateral arbitration, a plaintiff would be excluded not only from arbitrating a PAGA claim but also from filing a court action. Justices Sotomayor and Kagan focused on the notion that California intentionally sought to “serve its sovereign interests” by legislating around prior Supreme Court decisional law approving class action waivers in employment cases.
PAGA litigation is rampant in California, with Viking River Cruises noting that “17 PAGA complaints are filed every day.” As most California businesses know, PAGA suits, which seek recovery on a representative basis for California Labor Code violations, can be devastating to employers. Even technical or harmless violations of the Labor Code can lead to significant liability. While it is always difficult to predict a result from the high court, arbitration agreements have been traditionally enforced, and it appears that employers may continue to use properly drafted arbitration agreements as a way to help protect themselves against PAGA litigation.
A ruling from the High Court is expected by July 2022.
Hunt Ortmann frequently assists California employers with regard to the proper drafting of arbitration and other documents. Our Employment Practice Group stands ready to address any issues that arise. Contact JoLynn Scharrer at scharrer@huntortmann.com.
