Say goodbye to waivers under California’s PAGA? Not so fast, according to the Supreme Court | Bradley Arant Boult Cummings LLP

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California is complicated for employers – and a recent case, Viking River Cruises, Inc. vs. Morianais just one more example.

The Private Attorneys General Act of 2004 (PAGA) authorized California employees to sue employers for violations of the California labor code. An individual can sue on their own behalf and on behalf of other aggrieved employees – essentially a class action. Additionally, California law allows the person filing PAGA to join other claims against an employer, even if the individual plaintiff did not suffer such an injury. Pretty wide stuff!

But I have an arbitration agreement! Doesn’t that cover that?

Viking Cruises had a California employee, Angie Moriana, who signed an arbitration agreement as part of her employment. The agreement included a “class action waiver” that barred him from bringing a representative action on behalf of other employees — including a PAGA action — in arbitration. After leaving Viking, Moriana filed a PAGA lawsuit against Viking for his alleged loss of wages, but also for other labor claims on behalf of other Viking employees. Relying on the arbitration agreement, Viking decided to impose arbitration for its individual claims and to dismiss the PAGA claims on behalf of other employees. California state courts dismissed Viking’s petition and appeal, saying that public policy under PAGA prohibited the class action waiver. Viking appealed to the United States Supreme Court, which agreed to hear the case.

Matters of Agreement under the Federal Arbitration Act

The Supreme Court’s lengthy opinion analyzes the conflict between PAGA and the Federal Arbitration Act (FAA). In the end, the court found it very important that Moriana agreed to arbitration when she signed her employment contract. The Court noted that the FAA’s mandate is to enforce arbitration agreements. Arbitration does not alter substantive rights, it merely alters the forum and process by which the parties adjudicate those rights.

The Court also focused on the distinct differences between the “representative” nature of a class action plaintiff versus a PAGA plaintiff. A class action plaintiff must adequately represent the entire class (eg, suffer similar injuries). Under PAGA, a plaintiff can sue and join completely independent employment claims, even those for injuries the plaintiff did not sustain. The Court held that its past interpretations of the FAA held that states could not “coerce individuals out of arbitration by removing from the table the individualized and informal procedures characteristic of traditional arbitration.” However, the Court does not say that all class or representative action waivers are automatically enforceable under the FAA. Instead, the Court noted that a typical class action plaintiff brings claims on behalf of absent parties because the individual plaintiff adequately represents their interests; on the other hand, the structure of PAGA allows an individual to bring claims on behalf of absent parties which are completely separate from his own situation. The Court said that state law could not compel the employer to arbitrate claims (such as PAGA claims) that it did not agree to arbitrate in the first place.

Complicated end

Ultimately, the Court ruled that Moriana had to arbitrate her individual employment claims. The question was what to do with the claims of PAGA which she had also joined in the lawsuit. The arbitration agreement she signed included a severability clause, which means covered claims must be arbitrated even if other claims must not. The PAGA claims were not covered by the arbitration agreement, but since Moriana’s individual claims were to be arbitrated, she lost the right to bring the PAGA claims on behalf of other unrelated absentees. Accordingly, the Court concluded that these claims should be dismissed.

So, is a class action waiver enforceable in California?

As the Court stated, its decision does not mean that all class action waivers in arbitration agreements are automatically enforceable. However, due to PAGA’s joinder and representative structure, unrelated claims brought by an individual plaintiff under this law may be severed and possibly dismissed if the plaintiff’s individual claims go to arbitration. It is probably important that your arbitration and class action waiver agreement include a severability saving clause. You can bet PAGA will continue to generate plenty of disputes and conflicting interpretations. Employers with California employees should review any arbitration agreement and check for severability and waiver issues.

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