U.S. Supreme Court Grants Review Of Challenge To California’s Private Attorneys General Act (PAGA)

Betty Q. Hixson

On December 15, 2021, the U.S. Supreme Court granted certiorari in Viking River Cruises, Inc. v. Moriana.  At issue in this case is whether a California employer may enter into a voluntary agreement with an employee whereby the employee agrees to only bring his or her individual claims in an arbitration proceeding and not bring any class or representative claim under California’s Private Attorneys General Act (PAGA).  The U.S. Supreme Court will likely issue a decision in the summer of 2022.  Here is an overview of the key issues in Viking River Cruises, Inc. v. Moriana, California employers need to understand:

California’s Private Attorneys General Act (PAGA)

PAGA was designed by the California Legislature offer financial incentives to private individuals to enforce state labor laws by recovering certain civil penalties.  Aggrieved employees can seek recovery of civil penalties for Labor Code violations they suffered, in addition to penalties for all Labor Code violations by the employer in a representative action, as long as the employee suffered by at least one violation.  PAGA permits the aggrieved employees to collect civil penalties for Labor Code violations previously recoverable only by the Labor Commissioner.  If the Labor Code does not provide for a penalty, PAGA sets them at $100 per employee per pay period for the first violation, and $200 per pay period per employee for a subsequent violation. 75% of the collected penalties must be distributed to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations, and a prevailing plaintiff is entitled to their fees and costs.  PAGA claims are representative actions, but they are distinct from class actions.

Class Actions

Class actions are brought against a defendant, but the claims are being asserted on behalf of parties who are not actually in the courtroom or named as individual plaintiffs.  In the employment context, the plaintiffs are usually represented by at least one named plaintiff who is bringing claims that he or she has an individual on behalf of any other worker to is similar to the named plaintiff. The named plaintiff must prove to the court that there is a clear class definition that can be arrived at, and the individuals who meet that definition can be ascertained in some manner.  This proof is required to be presented when plaintiff brings their motion for class certification.  Class actions were developed for several reasons. One is to address the problem of  “negative value claims” as described by the court in Baker v. Microsoft (for claims that are legitimate, but cost too much to litigate individually).

Arbitration Proceedings

Simply stated, an arbitration is a legal proceeding in which the parties agree to resolve their differences before a private arbitrator instead of in civil court. There are many different arbitration companies to choose from, but the American Arbitration Association and JAMS are two of the larger ones that are routinely appointed in arbitration agreements.

California and U.S. Supreme Court Arbitration Cases

In 2011, the Supreme Court held in AT&T Mobility v. Concepcion arbitration agreements in which the plaintiffs agreed to resolve only their individual claims and could not bring any class claims in the consumer context, such as with cell phone providers, cable providers or services provided by internet companies, are enforceable.

In 2014, the California Supreme Court ruled in Iskanian v. CLS Transportation Los Angeles, LLC that pre-dispute agreements in which employees agree to arbitrate their individual claims and waive their ability to bring a representative PAGA claim on behalf of other employees is unenforceable and contrary to California’s public policy.  The Iskanian ruling barred employers from enforcing arbitration agreements that prohibited employees from bringing PAGA representative claims.

In 2018, the U.S. Supreme Court, in Epic Systems Corp. v. Lewis, held that employment arbitration agreements that bar class actions are enforceable.  Epic confirmed Concepcion’s holding that agreements whereby employees forgo class or collective actions by agreeing to individual arbitrations are enforceable under federal law.

In Viking River Cruises, Inc. v. Moriana, plaintiff worked for Viking as a sales representative in Los Angeles.  Plaintiff sued Viking alleging various Labor Code violations and sought to recover PAGA penalties on a representative basis.  However, when she started working for Viking, she agreed to resolve all employment issues with Viking in arbitration, and the parties would use individual procedures rather than class or representative action procedures such as PAGA.  Viking sought to compel Moriana’s individual claims to arbitration, but the trial court and the California Court of Appeal denied Viking’s request, citing the California Supreme Court’s holding in Iskanian. The California Court of Appeal noted that it “must follow the California Supreme Court, unless the United States Supreme Court has decided the same question differently.” Therefore, Viking petitioned the United States Supreme Court to review the case, arguing that Iskanian is preempted by federal law and the U.S. Supreme Court holdings in Concepcion and Epic. The U.S. Supreme Court agreed to review the case on December 15, 2021.  A decision in the case will likely be in the summer of 2022.

California employers should review their arbitration agreements with their attorney and potentially update given this new development.

California employers should review their arbitration agreements with counsel to evaluate whether the agreements should specifically prohibit representative PAGA actions given the U.S. Supreme Court’s review of Viking.

In addition, the U.S. Supreme Court’s review of Viking will also likely impact current PAGA cases, even before the final decision is issued in the summer of 2022, as defendants may have additional arguments to defeat currently pending PAGA cases depending on how the U.S. Supreme Court will rule.

U.S. Supreme Court Grants Review Of Challenge To California’s Private Attorneys General Act (PAGA)

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