Supreme Court Hands Victory to California Employers Who Use Arbitration Agreements as a Shield Against “PAGA” Claims

Immediately, america Supreme Court issued its extremely anticipated resolution in Viking River Cruises v. Moriana, which determined whether or not the Federal Arbitration Act (FAA) preempts California’s rule invalidating arbitration settlement provisions that comprise a waiver of the fitting to convey a consultant motion below the Personal Attorneys’ Common Act of 2004 (PAGA). 

The Court held that the FAA preempts the ruling of Iskanian v. CLS Transportation Los Angeles, LLC “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” 

This new resolution is one more in a lengthy line of instances reflecting the Court’s pushback towards state legal guidelines and judicially created doctrines that undermine the FAA.

That is a huge win for employers with operations in California

The Court’s resolution is technical and nuanced, however the important thing takeaway is that employers can take steps to mitigate the chance of pricey consultant PAGA actions in California by implementing and imposing arbitration agreements containing PAGA waivers that require an worker to submit their particular person claims to remaining and binding bilateral arbitration.   

For California employers, PAGA seemingly wants no introduction.  For practically 20 years, PAGA has enabled workers in California to “stand in the shoes” of the Labor and Workforce Improvement Company (LWDA) to get better civil penalties for any violation of the California Labor Code.  In a profitable PAGA motion, the LWDA is entitled to 75 % of the penalties, and the remaining 25 % goes to “aggrieved employees.” 

Because the Court noticed in Viking River, particular person “penalties are modest; but given PAGA’s additive dimension, low-value claims may easily be welded together into high-value suits.”  In different phrases, as a result of “PAGA plaintiffs represent a principal with a potentially vast number of claims at its disposal, PAGA suits ‘greatly increase[e] risks to defendants.’ ”  California employers are all too conversant in these dangers and the numerous potential for substantial legal responsibility for minor, trivial violations of the California Labor Code.  

For a number of years, employers tried to restrict the dangers of pricey consultant PAGA actions by implementing arbitration agreements with PAGA waivers.  Nevertheless, in 2014, the California Supreme Court issued its ruling within the Iskanian case holding that pre-dispute agreements to waive the fitting to convey “representative” PAGA claims are categorically invalid as a matter of public coverage. 

In accordance to the California Chamber of Commerce, after the Iskanian resolution, annual PAGA filings greater than doubled, from 2,000 per yr to greater than 4,000 per yr, and so they have continued to rise with every passing yr.  Due to the extremely punitive nature of PAGA penalties, even smaller employers confront instances giving rise to hundreds of thousands of {dollars} of potential legal responsibility. 

Whereas the Court’s resolution in Viking River is a enormous win for employers in California, it isn’t with out limits.  The Court held that “Iskanian’s prohibition on wholesale waivers of PAGA claims is not preempted by the FAA.”  Which means workers in California should still pursue PAGA penalties on a person foundation in arbitration.  Nevertheless, the Court made it clear that Iskanian’s rule that “PAGA actions cannot be divided into individual and non-individual claims is preempted,” which compelled enforcement of the employer’s arbitration settlement to ship the person worker’s claims to arbitration.  The Court held that when an worker’s particular person PAGA declare is submitted to arbitration, the worker lacks standing to pursue consultant PAGA claims in Court. 

Whereas a victory for employers, this ruling is just not the top of PAGA.  As Justice Sotomayor’s concurring opinion noticed, the Court primarily based its resolution on “available guidance from California courts” relating to state-law guidelines of standing.  She shortly famous that “if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.  Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits.”  The following few years are positive to ship additional improvement of the legislation within the PAGA enviornment, notably given California’s public coverage in imposing the Labor Code and recovering civil penalties—which have been a enormous boon to the LWDA’s coffers.

For now, employers ought to seek the advice of with authorized counsel to assessment, revise, or put together arbitration agreements containing legitimate PAGA waivers throughout the limits established in Viking River

As many employers will recall, in 2019, California handed a legislation prohibiting employers from requiring workers to signal arbitration agreements as a situation of employment.  That legislation was set to take impact on January 1, 2020, however is at present present process authorized challenges.   Most not too long ago, a panel of the Ninth Circuit upheld most of this legislation, however the California Chamber of Commerce petitioned the Ninth Circuit for a rehearing en banc, through which the complete appeals court docket will re-analyze the matter.  Given this uncertainty, it’s crucial that employers work with skilled employment counsel to make sure that their arbitration agreements have the best likelihood of being upheld and enforced in court docket.

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