Supreme Court Considers Intersection of PAGA and Arbitration

Employment Law

The U.S. Supreme Court considered California’s Private Attorneys General Act (PAGA) recently, debating whether a plaintiff who filed suit under the statute could avoid the mandatory arbitration clause she signed as an employee of a cruise company because she was standing in the shoes of the state labor agency as a PAGA plaintiff.

A former sales representative of Viking River Cruises, Angie Moriana claimed the company violated several provisions of the California Labor Code.

Viking responded with a motion to compel arbitration pursuant to an arbitration clause in an employment agreement that Moriana signed while an employee. A trial court denied the motion, and an appellate panel affirmed.

When the California Supreme Court passed on the case, the justices agreed to answer the question of whether the Federal Arbitration Act (FAA) requires the enforcement of the arbitration agreement despite the PAGA claim and whether it prevented Moriana from pursuing her class claims.

At oral argument—with Justice Clarence Thomas participating remotely—Viking contended the outcome is controlled by a line of cases, including Epic Systems Corp. v. Lewis and AT&T Mobility LLC v. Concepcion that stand for the proposition that a state is not free to simply declare that one of its own statutes is too important to be relegated to bilateral arbitration.

Employerwide PAGA claims are very similar to employerwide Fair Labor Standards Act (FLSA) collective actions, Viking told the Court. The employer also emphasized that it didn’t object to an employee standing in the shoes of the state labor agency in an individual PAGA action, but that the agreement signed by Moriana foreclosed her ability to bring a class action, a collective action or a PAGA action, or to participate as a member of any of those claims.

Perhaps tipping her hand, Justice Elena Kagan suggested the justices couldn’t second-guess California’s statutory scheme.

“The state has decided [PAGA] is necessary to adequately enforce its own labor laws,” she said. “I mean, the state has made a decision here, and it’s we don’t have the capacity to do this ourselves. We need private people to do it. And we need private people to do it in this way. They’re not going to come in with a claim for $2.32.”

State policy has to yield to the FAA, Viking reiterated, characterizing PAGA as “a very anomalous statute” and pointing out that no other state participated as an amicus in the case, underscoring “what an outlier this PAGA remedy is.”

In response, Mariana contended that the FAA does not preempt PAGA and pushed back on Viking’s position that the plaintiff could pursue a claim on her own behalf if she limited it to the penalties attributable to the violation affecting her.

She also cautioned the justices that preempting PAGA claims in this context could bar qui tam actions or shareholder derivative actions, which are also representative actions.

Justice Brett Kavanaugh questioned Mariana about California’s “outlier” status as the only state with such an enforcement mechanism.

“California chose this mechanism [because] it wanted to enhance its enforcement and picked the class of representatives who were the most likely to be effective representatives of its interests as opposed to the entire public,” Mariana explained.

In rebuttal, Viking pointed out the “practical” effect of PAGA, noting that after Concepcion was decided, “17 PAGA complaints are being filed every day.”

To read the transcript of oral argument in Viking River Cruises v. Moriana, click here.

Why it matters: A decision from the Court is expected later this term. Based on the line of questioning, a split opinion seems in the cards, with Justices Kagan and Sonia Sotomayor in line with Mariana while Justices Kavanaugh and Samuel Alito appeared to support Viking’s position. If the Court sides with Viking, employees with enforceable arbitration agreements may be prevented from bringing PAGA representative actions and may be compelled to comply with the terms of arbitration agreements that require their claims to be brought on an individual basis in arbitration.



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