Can an Arbitration Agreement Protect Employers from Class-Action-Like PAGA Claims?

Today the U.S. Supreme Court heard an oral argument in Viking River Cruise, Inc. v. Moriana on the issue of whether waivers of representative claims in arbitration agreements - including claims under the Private Attorney General Act ("PAGA") - are enforceable under the Federal Arbitration Act ("FAA").  If the Court answers affirmatively, California employers will be able to continue using PAGA waivers in arbitration agreements to limit their exposure to PAGA litigation.

PAGA authorizes aggrieved employees to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. PAGA plaintiffs act as "bounty hunters" and can receive a portion (25%) of the penalties that they "hunted" for the state. PAGA civil penalties are awarded per person per violation, per pay period and may raise stakes to millions of dollars. 

The Supreme Court held in previous decisions, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), and Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018), that when parties agree to resolve their disputes by individualized arbitration, those agreements are fully enforceable under the FAA. Courts are not free to disregard or “reshape traditional individualized arbitration” by requiring collective or representational adjudication of certain claims. Epic, 138 S.Ct. at 1623.

The FAA allows the parties not only to choose arbitration but to keep its bilateral form. The California Supreme Court refused to do so in the representative claims under PAGA, which—like a class action—allows aggrieved employees to seek monetary awards on a representative basis on behalf of other employees. See Iskanian v. CLS Transp. Los Angeles, LLC, 327 P.3d 129 (Cal. 2014).

The Supreme Court will issue its decision in late June of this year. 

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