Courts Weigh In On Employment PAGA Arbitration

The enforceability of mandatory enforcement claims in California has been uncertain for some time. However, a recent US Supreme Court ruling has unmuddied the waters when it comes to arbitration clauses and California Private Attorneys General Act (PAGA) claims. 

What is a PAGA Claim? 

California’s Labor Code Private Attorneys General Act (PAGA) permits employees to personally file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California. This is a unique statute, as most other states do not allow an employee to bring a lawsuit for Labor Code violations on their behalf. 

PAGA claims are challenging for California employers. Litigation is always expensive, but PAGA penalties are notoriously huge. 

Arbitration and PAGA Claims

In an effort to minimize the risk potential PAGA claims pose to employers, California companies began to include arbitration clauses in employment agreements. These clauses required employees to agree to arbitrate any dispute or claim they may have relating to labor code violations. Often, the clauses would also require employees to waive any right to bring a representative action. 

The enforceability of these clauses has been the subject of many legal proceedings over the past decade. However, a recent US Supreme Court ruling has somewhat settled the dispute as it pertains to whether the Federal Arbitration Act (FAA) pre-empts California’s PAGA rules. (It does – in certain circumstances.)

What The Courts Say – Clif Notes

The Supreme Court ruling, called Viking River Cruises, Inc v Moriana (Viking River), overturned part of an earlier ruling referred to as Iskanian. The Iskanian ruling by the California Supreme Court meant that employers could not require employees to waive their right to bring representative PAGA actions in court or in arbitration. It also voided arbitration clauses as they related to an employee’s individual PAGA claims. 

The Viking River ruling holds that federal law (specifically, the FAA) does permit parties to agree to arbitrate individual PAGA claims. 

Practical Impact of The Viking River Ruling

What the Viking River ruling means in practice is that employers may enforce arbitration where the employee has voluntarily agreed to an arbitration clause in their employment agreement and where the claim relates to an employee’s individual claim. 

It is important to remember that AB 51, which requires that employment arbitration clauses be voluntary if they are to be enforceable, is still currently effective law. While this may change in the future, employers should avoid making the signing of an arbitration clause mandatory if they wish for the clause to be enforceable under the law as it stands today.

If you’re uncertain whether your existing employment contracts contain enforceable arbitration clauses, reach out. Our employment attorneys would love to help. 

• Employment Law