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Client Alert – SCOTUS Issues Big Decision for California Employers in Viking Cruises case on Arbitration of Employee Claims

By: Senior Counsel I. Hooshie Broomand and Associate Collin Chandler

Employers throughout California won a significant battle to protect their interests against the onslaught of cases involving California’s Private Attorney General Act (PAGA”) this week after the United States Supreme Court handed down its opinion in the case of Viking River Cruises, Inc. v. Moriana.

Those who have endured any version of a PAGA lawsuit are well aware that this statute gives employees in California the right to bring a lawsuit against their employers for any violation of the California Labor Code, not only for themselves but also for all employees of a company.  Plaintiffs’ firms readily utilized this statute in such claims as the penalties impose monetary fines in the amount of $100 fine for the first violation and $200 for each subsequent violation of the same provision.  Thus, penalties could track well into the seven figures for arguably minor or immaterial Labor Code infractions.

To make matters worse for employers, PAGA does not provide for any express employer defenses to claims, like “substantial compliance” or defenses based upon an unintentional violation by an employer. Employers may be able to argue that there was no such violation of the Labor Code as alleged, or that the statute of limitations for the particular violation has passed, but this is a limited set of tools with which to work. Likewise, PAGA does allow courts, in their equitable discretion, to reduce the penalty assessed against an employer if “based on the facts and circumstance of a particular case, to do otherwise would result in an award that is unjust, arbitrary or oppressive, or confiscatory.” There is, however, little guidance as to what is considered oppressive or unjust.

At issue in Viking River Cruises, Plaintiff was victorious in California Superior Court arguing that her representative PAGA claim could not be compelled to arbitration under California law – namely, the California Supreme Court ruling in Iskanian v. CLS Transportation Los Angeles LLC. holding that wholesale arbitration agreements containing PAGA representation action waivers were against public policy, unenforceable, and void of Federal Arbitration Act preemption (FAA). The California Court of Appeal affirmed, explaining that because all PAGA claims are “representative” in that they are brought on behalf the state, Moriana alleged no personal claim for compensation that could be individually arbitrated. Viking appealed the Supreme Court, and the ruling was issued on June 15.

In its ruling, the Supreme Court struck a balance that in turn requires careful employer review of their current arbitration agreements.  Specifically, the majority of the Court found, on the one hand, that wholesale waivers of representative PAGA actions are not preempted by the FAA. However, the Supreme Court also held that the Iskanian rule precluding division of PAGA actions into individual and non-individual claims in arbitral proceedings is preempted and therefore individual claims can be compelled to arbitration. This second portion of the holding provides some much-needed relief to employers in California.

Importantly, the Supreme Court also provided guidance as to what is to be done with the non-individual portion of a PAGA claim, once the individual claim is compelled to arbitration. The Supreme Court stated those non-individual claims must be dismissed, as the plaintiff would no longer have standing to pursue the non-individual claims in state court. This leaves a plaintiff with only the ability to pursue violations individually experienced by them only in arbitration, thus gutting the ability of plaintiffs and their counsel to join multiple claims on behalf of other employees in a judicial forum, thus removing the ability to seek the large penalties.  Given this ruling, it will be imperative for employers to rewrite their arbitration provisions to address the holding and protect their interests immediately. 

Should you have any questions, please contact the attorneys at Murphy Pearson Bradley & Feeney, who can be found here:  https://www.mpbf.com/practice/employment/ for any help in carefully drafting the provisions of your agreements.

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