In Viking River Cruises, Inc. v. Moriana, 20-1573 (2022), the United States Supreme Court granted certiorari to decide whether the Federal Arbitration Act (“FAA”), preempts a rule of California law that invalidates contractual waivers of the right to assert representative claims under the California Labor Code’s Private Attorneys General Act of 2004 (“PAGA”).
A PAGA suit is a representative action in which the employee plaintiff sues as an agent or proxy of the state. California precedent also interprets the statute to contain a rule of claim joinder that allows the PAGA litigant to seek any civil penalties that the state can, including penalties for violations involving employees other than the PAGA litigant themself.
In Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 382, 327 P.3d 129, 148 (2014), the Supreme Court of California held that pre-dispute agreements that waive the right to bring representative PAGA claims are invalid as a matter of public policy. The Court explained that the principal rule from Iskanian prohibits waivers of representative standing to bring PAGA claims in a judicial or arbitral forum. However, Iskanian also adopted a secondary rule that invalidated agreements to separately arbitrate or litigate individual PAGA claims for Labor Code violations that an employee suffered.
The Court explained that the prohibition on the contractual division of PAGA actions into constituent claims unduly circumscribed the freedom of parties to determine the issues subject to arbitration and the rules by which they will arbitrate. The Court found that the effect of this rule was to coerce parties into withholding PAGA claims from arbitration and to opt for a judicial forum; a result that was incompatible with the FAA.
Thus, the Court held that the FAA preempted the Iskanian rule insofar as it precluded the division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. The principal rule from Iskanian, that pre-dispute agreements to waive the right to bring representative PAGA claims are invalid, is not preempted by the FAA. However, the Court explained that under PAGA’s standing requirement, a plaintiff can maintain non-individual PAGA claims only by virtue of also maintaining an individual claim in that action. Thus, when an employee’s own dispute is pared away from a PAGA action, the employee cannot maintain suit on the non-individual claims.
The Court held that the FAA preempts California precedent that precluded division of PAGA actions into individual and non-individual claims through an agreement to arbitrate and reversed and remanded the case.