On Wednesday, June 15, 2022, the United States Supreme Court issued its long-awaited ruling in Viking River Cruises v. Moriana, addressing the arbitrability of claims under California’s Private Attorneys General Act (PAGA).[1]

The Court held that the Federal Arbitration Act (FAA) conflicts with and displaces a rule invented by the California Supreme Court in 2014 in its Iskanian v. CLS Transp. Los Angeles, LLC opinion.  Until today, that rule precluded division of individual PAGA claims from non-individual PAGA claims, effectively precluding California courts from compelling individual PAGA actions to arbitration, even when the PAGA plaintiff employee had agreed to individual arbitration of any employment disputes.  Because the FAA preempts the Iskanian indivisibility rule, the Court held that the plaintiff employee should have been compelled to individually arbitrate her PAGA claims (including the State’s portion of any PAGA penalties) pursuant to her agreement with Viking River Cruises.  Importantly, the Court specifically rejected the argument that PAGA claims lie outside the FAA’s scope merely because the signatory employee is acting as an agent of the State and the State is not a party to the arbitration agreement.

With respect to Moriana’s non-individual PAGA claims against Viking River (i.e., the claims Moriana asserted on behalf of other aggrieved employees), the Court held that nothing in the FAA preempts the Iskanian rule precluding PAGA waivers.  That said, the Court recognized that once Moriana’s individual PAGA claims were compelled to arbitration, Moriana would lack standing to pursue PAGA claims on behalf of other employees in any forum.  The Court therefore held that Moriana’s PAGA claims on behalf of other employees should be dismissed.

The practical effect of the decision will be that California courts will now enforce arbitration agreements requiring individual arbitration of wage and hour claims as to PAGA claims (as long as those agreements are otherwise enforceable).  In such cases, arbitration will preclude PAGA claims on behalf of other employees.  Likely to be litigated, however, are arbitration agreements that carve out PAGA claims from their scope, that purport to waive the right to assert PAGA claims altogether, or that contain “poison pill” or restrictive severability language.

The Viking River ruling will be extremely beneficial to employers who have or who now implement enforceable and well-drafted arbitration agreements that require individual arbitration of PAGA and non-PAGA employment claims.  For such employers, PAGA will no longer function as a mechanism for the plaintiffs’ bar to avoid arbitration or coerce class action style settlements based on technical Labor Code violations.

Please contact your Hill Farrer attorney or any member of our Labor and Employment department to determine whether you need to revise your employee arbitration agreement in light of Viking River.  To the extent you have not rolled out an arbitration policy or agreements, now is a great time to do so thanks to Viking River’s clarification that even PAGA claims can be individually arbitrated.

[1] As a reminder, PAGA is a statute that allows employees to seek civil penalties from an employer based on all aggrieved employees who suffered underlying violations of the Labor Code during the statutory period.  The employee suing the employer for PAGA penalties acts as an agent of the State of California.  The State gets 75% of any penalties recovered.