Employers who have Employee Arbitration Agreements Get Some Relief from PAGA – for Now

In a boon to California employers, the U.S. Supreme Court this week overruled California precedent and held that employee agreements to arbitrate individual claims can preclude individual employees from bringing a representative action (i.e., a lawsuit on behalf of other employees) under California’s Private Attorney General Act (PAGA).

PAGA, permits an individual, aggrieved employee to sue an employer for claims on behalf of all employees for violations of California’s Labor Code. California employers often obtain pre-dispute arbitration agreements from their employees, but California courts previously ruled that such agreements, even if they have an explicit PAGA waiver, do not prevent the employee from suing the employer under PAGA.

Justice Alito, writing for the Court, refused to find that PAGA violates the Federal Arbitration Act (FAA) or that employee waivers of PAGA claims are enforceable. However, the Court found that employee waivers of individual claims in arbitration agreements are enforceable under the FAA and that those claims must be severed from any representative PAGA lawsuit. Since employees need to be “aggrieved” – i.e., have an individual claim--to bring a representative action under PAGA in court, once the individual claims have been severed from the PAGA claims, the individual employee can no longer bring or participate in the representative PAGA lawsuit.

This ruling gives employers long awaited relief from insidious PAGA claims brought by employees who have agreed to arbitrate disputes – for now. The Supreme Court’s analysis is premised on the statute’s mandate that PAGA representative claimants also have an individual claim against the employer. By severing waived individual claims from PAGA claims, the individual loses standing to bring the PAGA action. It is likely that the California legislature will respond to this decision by attempting to amend the statute’s requirements to make it easier for all employees to sue under PAGA. If that happens, the Court may be called upon to revisit the matter.

See Viking River Cruises v. Moriana (6/15/2022), https://www.supremecourt.gov/opinions/21pdf/20-1573_8p6h.pdf.

For more information or if you have any questions about the impact this ruling may have on your business, please contact Sandra Lepson at slepson@lepsonlaw.com.