California employers seeking to have employee disputes resolved via arbitration face formidable obstacles in Supreme Court Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan, as the Court’s liberal trio continues to raise tough questions about the fairness of forcing labor disputes out of the courtroom and into an arbitration proceeding.
The Supreme Court heard oral arguments Wednesday in Viking River Cruises, Inc. v. Moriana, the latest of several cases raising questions about employees’ rights to sue their employers in court even when those employees have agreed in employment contracts to arbitrate all claims.
The California’s Private Attorneys General Act of 2004 (PAGA) allows individual employees to act as “private attorneys general” by bringing private lawsuits against employers on behalf of the entire workforce and the State of California. The statute can provide workers with a valuable tool for enforcement of the state’s labor laws, but if individuals are prevented from litigating PAGA claims due to arbitration agreements, they may find themselves at a legal dead end. That is because representative actions —those in which a single plaintiff brings claims on behalf of other similar plaintiffs — are generally not permitted in arbitration.
Plaintiff Angie Moriana is a former sales representative for Viking River Cruises. She agreed in her employment contract that any dispute arising out of her employment would be subject to arbitration, and that she would waive the right to bring any “representative” employment action against Viking.
Moriana then brought an employment lawsuit under PAGA, which allows employees to recover civil damages on both their own behalf, on behalf of other employees, and on behalf of the state itself. Viking moved to dismiss Moriana’s claim based on the arbitration clause, and Moriana argued that any waiver of the right to sue violates California public policy.
Both the trial court and the California state appellate court sided with Moriana, reasoning that because her claim was brought in a representative capacity on behalf of the state, her individual arbitration agreement does not apply.
“Because Moriana was not acting as an agent of the state when she agreed to arbitrate any claim arising from her employment, there is no agreement that would bind the state to arbitration, even on the question of arbitrability,” the California Court of Appeals wrote.
Viking appealed to the Supreme Court, arguing that “there is no doubt about the importance and recurring nature of the issue.” Viking contends that enormous numbers of California employers “are facing an onslaught of PAGA representative claims, which have exploded in quantity” as a result of recent precedents.
During Wednesday’s arguments, the Court’s liberal wing pressed Viking’s lawyer, Paul Clement, on the overall fairness of his client’s position. Because class-action and other representative lawsuits generally cannot be arbitrated, a ruling in Viking’s favor could mean that Moriana and other similar plaintiffs are left with no forum to address their grievances.
Kagan commented that California’s choice to allow individuals to bring wages and hours claims against employers under PAGA is an intentional mechanism by California to enforce its labor laws. Individual workers would otherwise be unlikely to bring claims for minor infractions by employers, and the state lacks the resources to prosecute every violation; thus, Kagan said, allowing employees to file representative claims on behalf of groups of workers as well as the state itself becomes a key way to hold employers accountable for their labor practices.
Kagan framed the concern as one of state sovereignty, saying to Clement, “Essentially your position says, ‘you know the state just can’t make that decision even though that’s the way the state has decided best serves its sovereign interests.’”
Clement argued that without a ruling in his client’s favor, “arbitration is going to wither on the vine.” Breyer, however, was unconvinced.
“I hate to tell you, that reminds me of Catch-22,” Breyer said. He continued, characterizing the conundrum created by Viking’s attempt to hold Moriana to an arbitration agreement even for claims that are inappropriate for arbitration.
“You agreed to go to arbitration, but you can’t go to arbitration so you can’t agree to go to arbitration, but because you agreed to go to arbitration, you can’t go to court,” he said with incredulity.
Sotomayor continued to press Clement, saying, “I have a series of problems with all of your answers.” The justice continued, pointing out that arbitration could be compatible with complex cases, as the Court has permitted arbitration in RICO, securities, anti-trust, and sexual harassment cases.
However, Sotomayor returned the colloquy to California’s right to enforce its own labor laws. Sotomayor pointed out, “each individual employee is not going to have a financial incentive to bring these suits on behalf of the state.” “That’s what you’re banking on,” she said, and continued, “you’re banking on destroying the state’s mechanism for enforcing labor law violations, aren’t you?”
When Attorney Scott Nelson argued on behalf of Moriana, he faced an unusual analogous hypothetical from Breyer. The justice asked whether California’s legislation amounted to putting a spider next to certain claims, then legislating that nothing with a spider could be arbitrated.
“I guess we’d have to go back and see whether they put the spider on it in order to be hostile to arbitration,” explained Breyer. He suggested that if PAGA was adopted to intentionally shield cases from arbitration, it might not be enforceable, but if it applies generally, the outcome would differ.
Kagan inquired of Nelson what the impact would be on other representative litigation, such as shareholder or ERISA lawsuits, if the Court sides with Viking. Nelson answered that such actions could be significantly limited if his client is not allowed to litigate her claim.
Kagan followed up, remarking, “if Mr. Clement prevails, we can entirely wipe out those suits.”
On rebuttal, Clement argued that the case is merely an outlier, based entirely on quirks in California law. Under PAGA, Clement argued, “it’s anything goes for the whole work force.”
“It makes no sense,” he continued, adding that “there’s a reason why this happened in California.”
You can listen to the full oral arguments here.
Attorneys for the parties did not immediately respond to request for comment.
[Photo by Alex Wong/Getty Images]
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