In 2004, California enacted the Private Attorney General Act (“PAGA”), a law that allows private individuals to bring enforcement actions on behalf of California’s Labor Workforce Development Agency (“LWDA”). Since its enactment, the law has been used to curb violations of the California Labor Code while simultaneously serving as a boon to many plaintiff-side employment lawyers. Under PAGA, an “aggrieved employee” can bring an action against their employer “on behalf of himself or herself and other current of former employees.” If successful, the bulk of any damages award – seventy-five percent – goes to the LWDA, while the remaining twenty-five percent is distributed among the affected employees. PAGA also provides a mandatory award of “reasonable attorney’s fees and costs,” thus incentivizing attorneys to pursue PAGA actions (even if the overall award to individual affected employees may be minimal).
On June 15, 2022, the United States Supreme Court issued a landmark decision regarding PAGA actions in Viking River Cruises, Inc. v. Moriana. Viking River Cruises involved a former employee, Angie Moriana, who sued Viking River Cruises alleging violations of PAGA individually and on behalf of other employees. However, at the beginning of her employment Moriana had executed a binding arbitration agreement which contained a class action waiver that (1) prohibited her from bringing “any dispute as a class, collective, or representative PAGA action”; and (2) mandated any such dispute be brought in binding arbitration. Based on this waiver and binding arbitration agreement, Viking River Cruises moved to compel arbitration. Both the trial court and California Court of Appeal found this waiver to be invalid, with the Court of Appeal holding “that categorical waivers of PAGA standing are contrary to state policy and that PAGA claims cannot be split into arbitrable individual claims and nonarbitrable ‘representative’ claims.” Viking River Cruises thereafter appealed the issue to the U.S. Supreme Court to determine whether the Federal Arbitration Act (“FAA”) preempted the policy set forth by the California Court of Appeal.
The Supreme Court held the FAA preempted the Court of Appeal’s holding that PAGA claims could not be split into individual and representative claims. As such, Moriana’s individual PAGA claims could be compelled to arbitration based on her arbitration agreement with Viking River Cruises. The impact of this was that, without Moriana as the “aggrieved employee,” there would be no employee left to serve as the representative for those non-individual claims. Further and critically, however, the Supreme Court noted this holding was mandated by current California law, which presently “provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding” (here, arbitration). In noting this, it expressly stated that the California Legislature was of course free to change PAGA to address this situation.
So, what does this mean for California employers? In the near term it is a “win” under PAGA as it is presently written. Employers can now argue that valid binding arbitration agreements and attendant representative/PAGA action waivers can be used to compel an individual’s PAGA claims to arbitration. Once this occurs, that individual can no longer pursue representative PAGA claims, meaning the (typically) larger action cannot go forward unless another “aggrieved employee” is found who does not have an enforceable PAGA arbitration agreement. However, perhaps due to the Supreme Court’s invitation, the California legislature is already considering potential changes to PAGA in response to Viking River Cruises. To make matters even more muddled, earlier this year a measure qualified for the 2024 ballot that could significantly pare back PAGA’s scope. It will of course remain to be seen what further changes to PAGA occur, but with these recent developments the form and substance of PAGA will likely continue to change over the next few years.
We here at Scherer Smith & Kenny LLP remain available to address any questions you may have related to these or other employment- or business-related issues. For additional information, please contact Denis Kenny at [email protected], Ryan Stahl at [email protected], or John Lough, Jr., at [email protected]
Written by Ryan Stahl