The U.S. Supreme Court recently issued a favorable decision for California employers in Viking River Cruises, Inc. v. Moriana on the issue of whether employers may enforce valid arbitration agreements with employees for claims brought under California’s Private Attorneys General Act (“PAGA”). Learn more about PAGA here, here and here.
The Court held that PAGA claims can be divided into individual claims being pursued by the named plaintiff, and representative claims brought on behalf of all other allegedly aggrieved employees. As such, a plaintiff signed to a well-written arbitration agreement can be required to arbitrate their PAGA claims on an individual basis. Once that happens, the remainder of any PAGA claim filed in court (i.e., the claims brought on behalf of other employees that are not allowed to be compelled to arbitration) must be dismissed because the named plaintiff no longer has “standing” to pursue the claim in court.
Is the decision too good to be true for employers? Maybe.
While many employers may be rushing to implement arbitration agreements in an attempt to reduce exposure to PAGA lawsuits, the benefits of the decision might be short-lived. The Court’s decision was based on the definitions that currently appear in the PAGA statute. Justice Sotomayor’s concurrence expressly acknowledged that the California legislature could simply amend the PAGA statute to allow employees to retain standing to proceed in court on behalf of other employees despite having their individual claims committed to arbitration.
Employers must also consider evolving California law regarding mandatory arbitration agreements.
Labor Code section 432.6 (aka AB 51) is currently in effect even though its legality is still being litigated in the Ninth Circuit. (See Chamber of Commerce of the U.S. v. Bonta). The law prohibits employers from requiring employees to sign arbitration agreements that cover claims under the Fair Employment and Housing Act or the Labor Code (i.e., PAGA claims) as a condition of employment. Under certain circumstances, criminal or civil penalties can be imposed for violating the law. Thus, as long as the is law is still in effect, arbitration agreements purporting to cover PAGA claims would need to be made entirely voluntary.
Before deciding to implement an arbitration agreement with employees, companies should also consider the scope of claims covered by the agreement, the cost associated with arbitration proceedings, and will want to make sure the agreement is drafted to best navigate current federal and California state law. A company should carefully weigh the potential benefits and risks associated with having an arbitration agreement in place before rolling one out to employees.