Supreme Court Deals Blow to California PAGA Claims

Washington, DC On June 15, in Viking River Cruises, Inc. v. Moriana, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) preempts California’s Private Attorneys General Act (PAGA). The decision reverses standing precedent under California labor law, which had permitted class action labor lawsuits against employers even when workers had agreed to resolve employment disputes through individual arbitration.

As with several other decisions handed down at the end of the term, the full implications are still unclear. But it looks better for employers than it does for employees acting to enforce their rights under California labor law. Individual arbitration is often understood to seriously disadvantage workers.

Angie Moriana had trouble collecting her last paycheck

Viking allegedly failed to pay her within 72 hours of her termination of employment, as required under Sections 101-102 of the California Labor Code.  Significantly, however, when she was first hired, she had signed an agreement to arbitrate any dispute with Viking and to waive her legal right to participate in a class action lawsuit. These are very common agreements, often hidden somewhere in onboarding documents.

In addition to her individual claim Moriana also filed a PAGA lawsuit that that asserted a wide array of other labor code violations allegedly sustained by other Viking employees. These concerned minimum wages, overtime, meal periods, rest periods, timing of pay, and pay statements.

PAGA and the demise of the Iskanian rule

The California legislature adopted the Private Attorneys General Act, or PAGA, in 2004. The law empowers workers to sue their employers for labor law violations on behalf of the state – essentially acting as California’s eyes and ears on the ground. These are often referred to as qui tam actions, and California’s law is unique in its use of this technique as a way of protecting workers’ rights.
PAGA allows any “aggrieved employee” to initiate an action against a former employer “on behalf of himself or herself and other current or former employees” and to obtain civil penalties. The employee sues and receives civil penalties only as an agent or proxy of the State. The employee can sue not only for alleged labor violations that he or she experienced, but also for alleged violations that any other employee experienced.

In 2014, in Iskanian v. CLS Transportation Los Angeles LLC  the California Supreme Court held that an arbitration agreement is invalid under California law if the agreement limits PAGA claims to violations affecting the claimant alone and prevents the claimant from asserting violations experienced by other employees. In a nutshell Viking River Cruises strikes down the Iskanian rule.

Federal Arbitration Act

The FAA is where the U.S. Supreme Court found authority to invalidate the holding of the California Supreme Court.  The FAA makes arbitration agreements binding and limits the reasons for which courts can review and set aside arbitration awards. It applies to both federal and state courts and essentially supplants the judicial process as a way of resolving disputes. The FAA embodies a national policy favoring arbitration. Proponents argue that arbitration is quicker and cheaper than litigation. On its face, it looks like a great idea.

Critics argue, however, that in arbitration involving employment or consumer disputes, the deck is stacked against the individual. They insist that access to the court system, often by means of a class action lawsuit, is the only way to level the playing field.

Some practical problems with arbitration

At the outset, it is important to realize that the new employee, likely happy to have a job, has no real choice about whether to sign an agreement to arbitrate employment disputes. No signature – no job. One of the basic requirements of an enforceable contract is mutual assent. This hardly rises to that level.

Several additional problems may also arise:

• Arbitration may not provide workers with the same extent of discovery that a lawsuit would. Some kinds of cases are practically impossible to win without gathering information about how other employees have been treated.
• Some arbitration agreements shorten statutes of limitations, alter the burdens of proof or limit the amount of time a party has to present his or her argument. It is very difficult to challenge the procedural decisions of an arbitrator in court.
• Arbitrators (who are frequently hired by the employer) are often reluctant to award generous damages to prevailing parties, and their awards are not appealable. Statistically, employees win less often and receive much lower awards in arbitration than they do in court.
• Finally, some arbitration agreements require the losing party to pay all the arbitration fees, including the cost of the other side’s attorney. These loser-pays clauses deter workers from asserting any claims.

What’s next?

It is not entirely clear yet how viable PAGA claims will be in the wake of Viking River Cruises. Nonetheless, California employment attorneys have continued to project optimism about the ability of workers to pursue some PAGA claims depending on the particularities of their situations.