U.S. Supreme Court Delivers a Win for California Employers

By Olivia Hariharan Godt

Last week, the U.S. Supreme Court handed down its much-anticipated decision in Viking River Cruises v. Moriana. The nation’s highest court switched course from California precedent to hold that Viking Cruises could compel its former employee, Moriana, to arbitrate her individual Private Attorney General Act (PAGA) claims. In addition, the Court decided that she did not have standing to assert a PAGA action in court.

The Background. PAGA authorizes employees to stand in the shoes of California’s Labor and Workforce Development Agency to sue their employers for labor code violations. Employees can bring a claim not only on their own behalf, but also on behalf of all similarly “aggrieved” employees. Since PAGA was enacted, the plaintiffs’ bar has used PAGA to leverage risk, sometimes increasing the alleged damages by millions, or tens of millions, of dollars.

When she was hired, Plaintiff Moriana signed an agreement to arbitrate any dispute arising from her own employment. She also agreed not to arbitrate any representative PAGA action. Later, she alleged that Viking Cruises failed to timely pay her final wages. In addition to that individual PAGA claim, Moriana also asserted a PAGA representative claim for wage and hour violations on behalf of other employees.

Viking Cruises moved to compel Moriana to arbitrate her individual claims based on their agreement. But, the California courts denied the motion based on the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles. In that case, the court decided that individual and representative PAGA claims could not be separated for arbitration, and thus neither could be arbitrated.

The Decision. The federal Supreme Court took the case to determine whether the Federal Arbitration Act (FAA) preempted the state court’s decision in Iskanian. In doing so, it considered the practical effect of Iskanian: either the parties were deprived of their right to arbitrate under the FAA, or, by forcing the parties to arbitrate all claims, the proceedings would be broader than the parties’ original agreement to only arbitrate individual claims.

Based on that reasoning, the Court held that the FAA preempted Iskanian, and Viking Cruises could compel Moriana to arbitrate her individual claims, as the parties had agreed from the outset.

Importantly, the Court also determined that Moriana did not have standing to bring the representative PAGA claims on behalf of others in court. That is, she could not assert the representative claims in arbitration nor bring them in court.

The Impact. Moriana is a win for California employers. Now, employers can compel PAGA plaintiffs into arbitration for their individual claims and force the dismissal of their PAGA representative actions in court.

That said, as noted by Justice Sotomayor, California courts could come to a different conclusion about the standing issue, and the California legislature could always codify a different result.

Now is a great time to talk to an employment attorney about taking advantage of this favorable decision. If you would like a review of your current arbitration agreements, or to implement a new one, please feel free to contact us. We are happy to help.

This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions about the issues raised here, please contact any of the attorneys in our Labor & Employment Practice Group, or the attorney with whom you normally consult.