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In its long-awaited decision, the United States Supreme Court handed a victory to California employers, holding that arbitration agreements are enforceable for individual claims under the California Private Attorneys General Act of 2004, or PAGA. Generally, California’s PAGA permits aggrieved employees to act as an agent for the state to bring claims on behalf of themselves and other employees to recover civil penalties for violations of the California Labor Code. Specifically, the Court’s ruling in Viking River Cruises, Inc. v. Moriana holds that claims under PAGA can be divided into individual and non-individual claims and that employees can be compelled to arbitrate their individual PAGA claims where there is an enforceable arbitration agreement.

The plaintiff in Viking River Cruises signed an agreement with her employer to “arbitrate any dispute arising out of her employment,” which included a class action waiver indicating that the parties could not bring any dispute as a class, collective, or representative PAGA claim. The agreement also contained a severability clause that stated if any portion of the representative action waiver was found invalid, then those claims could be litigated in court, but if any portion of the waiver remained valid, those claims would be enforced in arbitration. When the plaintiff was terminated by Viking River Cruises, she filed a PAGA action on behalf of herself and other aggrieved employees for various labor code violations.

The U.S. Supreme Court’s ruling in Viking River Cruises, Inc. v. Moriana overturns Iskanian v. CLS Transp. Los Angeles, LLC, a 2014 California Supreme Court case that held that class action waivers in arbitration agreements do not apply to PAGA claims. In Viking River Cruises, the U.S. Supreme Court concluded that the Federal Arbitration Act (FAA) permits arbitration agreements to apply to individual workers’ claims under PAGA, and this separates the workers’ individual claims from claims on behalf of others. Therefore, Viking River Cruises was permitted to compel the plaintiff to arbitrate her individual PAGA claim.

However, the Court also held that the FAA does not preempt prohibitions on wholesale waivers of rights under PAGA. Nonetheless, Viking River Cruises was permitted to compel arbitration on the individual PAGA claim because even if the PAGA waiver was partially invalid, the severability clause in the arbitration agreement allowed any portion of the waiver that remained valid to be properly enforced in arbitration. Since the plaintiff could be compelled to arbitrate her individual PAGA claims, she would not have an individual claim to litigate and, therefore, would not have standing to pursue the non-individual PAGA claims in court. Thus, these claims should be dismissed.

California employers should note that the Court did leave the door open for the California Legislature to amend the PAGA to resolve this standing issue by allowing aggrieved employees who arbitrate individual claims also to litigate class action claims. Employers that have questions about the implications of this decision for their organization or would like a legal review of their California arbitration agreements can contact the California Legal Services team at CAInfo@employerscouncil.org.