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California Employers May Compel Arbitration of Employees’ PAGA Claims

California Employers May Compel Arbitration of Employees’ PAGA Claims

On June 15, 2022, the U.S. Supreme Court held in Viking River Cruises, Inc. v. Moriana that an employer may compel arbitration of an employee’s individual California Private Attorney General Act (PAGA) claims.

Angie Moriana (Moriana) sued Viking River Cruises, Inc. (Viking River) for California wage and hour violations through PAGA, which permits employees to sue to recover civil penalties for Labor Code violations on behalf of themselves and other affected employees.

The parties’ arbitration agreement included a “Class Action Waiver,” providing the parties could not bring any dispute as a class, collective, or representative action under PAGA; and a severability clause, providing that any portion of the waiver that was deemed valid would be enforced in arbitration.

Viking River moved to compel arbitration of  Moriana’s individual PAGA claim and to dismiss her representative or non-individual PAGA claims.

The California courts denied the motion, holding that PAGA waivers are contrary to California public policy and cannot be split into arbitrable “individual” claims and nonarbitrable “representative” claims. The Supreme Court disagreed.

The Court held that the Federal Arbitration Act (FAA) preempts California courts from precluding the division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.

However, the FAA does not preempt California law that wholesale PAGA waivers are invalid. So when the Viking River waiver is read that way it is invalid. But, the severability clause entitled Viking River to compel arbitration of any portion of the waiver that is valid. Accordingly, Viking River could compel arbitration of Moriana’s individual PAGA claim without her representative (non-individual) claims.

The Court then dismissed Moriana’s non-individual PAGA claims because a plaintiff employee can only bring representative PAGA claims together with his or her individual PAGA claim. Because Moriana agreed to arbitrate her individual PAGA claim, she did not have standing to pursue her representative PAGA claims apart from her individual PAGA claim in court.

For now, this is a victory for California employers who can limit their liability for representative PAGA claims by using waivers and severability clauses like those upheld by the Court. However, don’t be surprised if this victory is short lived because the California Legislature may amend PAGA to allow employees’ representative claims to continue in court apart from their individual claims.