Last month, the U.S. Supreme Court heard oral argument in the case, Viking River Cruises, Inc. v. Moriana on the issue of whether employers may enforce valid arbitration agreements against employees for claims brought under California’s Private Attorneys General Act (“PAGA”).
California courts have held that PAGA actions are not subject to private arbitration agreements, and an employee cannot waive his or her right to bring a PAGA action in court on a representative basis. The Viking River Cruises case specifically focuses on whether the Federal Arbitration Act of 1925 preempts California law, such that an employer can enforce a PAGA action waiver in a private arbitration agreement. If the Court decides the case in favor of the employer, then employees could be required to bring PAGA claims before an arbitrator on an individual basis, rather than being allowed to proceed in court on a representative basis.
PAGA cases have been costly to employers
PAGA allows an employee to bring an enforcement action on behalf of the State of California against their current or former employer to recover civil penalties for even technical violations of the California Labor Code. PAGA lawsuits are pursued on behalf of all allegedly aggrieved employees and need not adhere to formal class action procedural requirements. Allegations in a single lawsuit can quickly add up to hundred of thousands, if not millions, of dollars in potential exposure for an employer because penalties are assessed per violation, per employee, per pay period.
Despite the enormous cost to employers, a PAGA lawsuit payout mainly benefits the plaintiff’s attorneys, and not the allegedly aggrieved employees. Only 25% of the penalties recovered go to the alleged aggrieved employees, while the other 75% goes to the State of California. A plaintiff’s attorney then collects all of their fees on top of the penalty recovery.
The court has a history of supporting businesses’ right to arbitration
The high court has traditionally ruled in favor of businesses and their right to require arbitration rather than deal with class-action lawsuits. Court observers noted that the justices in the court’s conservative majority asked few questions of the attorneys on either side. Justice Brett Kavanaugh asked for confirmation that California is an “outlier” in having this type of law.
The three liberal justices appeared to support California’s law. Justice Elena Kagan said, “This is the state’s decision to enforce its own labor laws in a particular kind of way.”
The court is expected to hand down its ruling on the case in June.