Supreme Court: An Employee’s Individual PAGA Claim Must Be Adjudicated in Arbitration

BACKGROUND

PAGA allows “aggrieved employees” to step into the shoes of the state and seek civil penalties on behalf of themselves and other current or former employees for various Labor Code violations. When issuing its decision in Iskanian, the Supreme Court of California previously determined that PAGA claims cannot be forced into arbitration because the state—not the employee—is the real party in interest and not bound by an arbitration agreement between an employer and employee. Iskanain also held that a PAGA claim could not be divided into arbitrable individual claims and non-arbitrable representative claims because a PAGA action is a single claim for civil penalties brought on behalf of all aggrieved employees. Under Iskanian and its progeny, employees who signed otherwise valid arbitration agreements were allowed to bring PAGA claims in court, even when they were forced to arbitrate their individuals claims. Now, that is no longer the case.

Under Viking River, employees with a valid arbitration agreement are required to arbitrate their claims, including the individual aspects of a PAGA claim. Moreover, the Supreme Court determined that once a plaintiff’s individual claims are severed and sent to arbitration, the remaining “representative” claims (i.e., alleged violations of the Labor Code suffered by other alleged aggrieved employees) must be dismissed because the plaintiff no longer has standing to bring those claims. This is a notable departure from the historical practice of California courts, which has long conferred standing on a plaintiff who has suffered at least one Labor Code violation to pursue PAGA penalties for all Labor Code violations (even those not personally suffered).

THE KEY TAKEAWAYS

There are three main takeaways from the Supreme Court’s ruling:

1. Employees may agree to arbitrate PAGA claims on an individual basis.
2. In such cases, individual violations of the Labor Code actually endured by the plaintiff must be sent to arbitration.
3. The remaining “representative” portion of the PAGA claim must be dismissed for lack of statutory standing.

However, the Court did not overrule Iskanian’s rule that blanket PAGA waivers are unenforceable. Such blanket waivers remain invalid. Notably, the waiver in Viking River had a blanket PAGA waiver and would have been unenforceable but was saved by a “severability clause” that provided, “if the waiver provision is invalid in some respect, any ‘portion’ of the waiver that remains valid must still be ‘enforced in arbitration.’” Going forward, arbitration agreements should contain similar robust clauses.

Additionally, Viking River did not foreclose the state from amending the PAGA statute to provide statutory standing even when an employee did not personally suffer violations, and such changes may be brewing in the state legislature. In response to the Viking River decision, California Attorney General Rob Bonta promptly issued a statement that “[they] will continue to stand with workers to fight for their rights everywhere.” Employers should also monitor the Chamber of Commerce v. Bonta ruling (which addressed whether the FAA preempts California’s Assembly Bill 51), as the US Court of Appeals for the Ninth Circuit could review that decision/issue again in light of Viking River.

For now, employers should review their arbitration agreements to ensure it contains:

1. A provision for arbitration of claims only on an individual basis.
2. A clear waiver of an employee’s right to bring representative claims.
3. A clear severability clause.

If you have any questions regarding the Supreme Court’s decision or how to navigate its implications, please contact your regular McDermott team member.