SCOTUS Enforces California Employee Arbitration Agreements

In the closely watched underlying case of Moriana v Viking River Cruises Inc. Angie Moriana sued her former employer Viking River Cruises, a company located in Woodland Hills California, in a California state court seeking recovery of civil penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.).

She alleged that Viking had failed to provide her with her final wages within 72 hours, as required by §§101-102 of the California Labor Code. The complaint also asserted a wide array of other code violations allegedly sustained by other Viking employees, including violations of provisions concerning the minimum wage, overtime,meal periods, rest periods, timing of pay, and pay statements.

Moriana’s employment contract with Viking contained a mandatory arbitration agreement. Viking moved to compel arbitration of Moriana’s individual PAGA claim and to dismiss her other PAGA claims. The trial court denied Viking’s motion and the 2nd district Court of Appeal affirmed in the unpublished Court of Appeal opinion.

Viking argued that the United States Supreme Court’s decision in Epic Systems Corp. v. Lewis (2018) overruled the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, in which the California Supreme Court held” “that an employee’s right to bring a PAGA action is unwaivable,” and that “here . . . an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.”

Applying California’s Iskanian precedent, the California courts denied that motion,holding that categorical waivers of PAGA standing are contrary to California policy and that PAGA claims cannot be split into arbitrable “individual” claims and nonarbitrable “representative” claims.

The Supreme Court of the United States granted certiorari to decide whether the Federal Arbitration Act preempts the California rule. In an 8-1 decision, it held 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 in the case of Viking River Cruises v Morniana – No. 20-1573 (June 2022).

The California Legislature enacted PAGA to address a perceived deficit in the enforcement of the State’s Labor Code. The primary function of PAGA is to delegate a power to employees to assert “the same legal right and interest as state law enforcement agencies,” But it does not create any private rights or private claims for relief. As the California courts conceive of it, the State “is always the real party in interest in the suit.”

California precedent also interprets the statute to contain what is effectively a rule of claim joinder. Rules of claim joinder allow a party to unite multiple claims against an opposing party in a single action. An employee who alleges he or she suffered a single violation is entitled to use that violation as a gateway to assert a potentially limitless number of other violations as predicates for liability. In this regard the SCOTUS opinion noted that this “mechanism radically expands the scope of PAGA actions.”

The FAA was enacted in response to “judicial hostility to arbitration.” The FAA’s “mandate is to enforce arbitration agreements.” Yet conflict between PAGA’s procedural structure and the FAA does exist, and that it derives from the statute’s built-in mechanism of claim joinder.

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. And under PAGA’s standing requirement, a plaintiff has standing to maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action.

“State law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.”

Iskanian’s prohibition on wholesale waivers of PAGA claims is not preempted by the FAA. But Iskanian’s rule that PAGA actions cannot be divided into individual and non-individual claims is preempted, so Viking was entitled to compel arbitration of Moriana’s individual claim.

“When an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” As a result, Moriana would lack statutory standing to maintain her non-individual claims in court, and the correct course was to dismiss her remaining claims.

In responding to the decision, the California Attorney General said “While today’s decision is disappointing and adds new limits, key aspects of PAGA remain in effect and the law of our state.”

SCOTUS Enforces California Employee Arbitration Agreements

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