When the U.S. Supreme Court published its decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022) in June 2022 (read our blog here) holding that individual claims under California’s Private Attorneys General Act (“PAGA”) must be arbitrated if a valid arbitration agreement between the parties exists, it left several unanswered questions. One of these questions is whether an employee with a valid arbitration agreement who arbitrates a PAGA claim loses their legal ability to sue on behalf of other employees. Four recent California Courts of Appeal decisions (Galarsa v. Dolgen California LLC decided February 3, 2023, Piplack v. In-N-Out Burgers decided March 7, 2023, and Gregg v. Uber Technologies, Inc. decided March 24, 2023, Nickson v. Shemran, Inc. decided April 7, 2023 ) have answered the question of legal standing. Primarily, California courts are starting to split PAGA claims into claims of the individual plaintiff and those the plaintiff brings on behalf of other employees (i.e., representative actions). These four cases held that the plaintiff had to arbitrate his or her individual PAGA claims in arbitration, but still maintained the ability (or “standing”) to sue on behalf of other employees in court.
In Viking River, the U.S. Supreme Court ruled that the Federal Arbitration Act (“FAA”) preempts binding California case law precluding division of PAGA actions into individual and non-individual claims through an arbitration agreement. The Court further held that once the employee brings their individual PAGA claims to arbitration, they thereafter lack standing (i.e., the legal ability to sue) to pursue representative PAGA actions on behalf of other “aggrieved employees” in state court. In her separate, concurring opinion Justice Sotomayor also stated 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 Viking River ruling meant that an employee who entered into a valid arbitration agreement may be compelled to arbitrate their individual PAGA claims instead of taking their PAGA claims straight to court as they have done over the past several years, and that such an employee could not thereafter pursue PAGA claims on behalf of other “aggrieved employees” because, based on the Court’s interpretation of California law, PAGA claims could not be split into individual and representative claims.
However, as of April 2023, Galarsa, Piplack, Gregg and now Nickson have all reached the same conclusion, which is that the United States Supreme Court’s interpretation of California law in Viking River was incorrect, and that although an employee must arbitrate individual PAGA claims pursuant to an enforceable arbitration agreement, they may litigate the representative, non-individual PAGA claims in state court on behalf of other “aggrieved employees.”
What do these recent appellate decision mean for employers? First, at some point, likely in 2023, the California Supreme Court will issue a decision in Adolph v. Uber Technologies, Inc., Cal. Ct. App. Case No. G059860 as to whether an employee who has been compelled, pursuant to Viking River, to arbitrate his individual PAGA claim is thereby barred from pursuing a larger representative PAGA claim in court. In the meantime, as explained in more detail below, trial courts will follow course charted in the Galarsa, Piplack, Gregg and Nickson opinions by compelling arbitration of PAGA claims, but allowing representative PAGA claims to proceed in civil court.
Individual and Representative Claims
Under Viking River and the recent California appellate court cases referenced above, courts are likely to look at every PAGA action as a combination of two kinds of claims:
- An “individual” claim, arising from the Labor Code violations suffered by the named plaintiff or plaintiffs themselves, and
- A “representative” claim, arising from violations suffered by other employees.
In Galarsa, the court stated that “a plaintiff’s PAGA standing does not evaporate when an employer chooses to enforce an arbitration agreement.” As the court explained, PAGA standing is conferred “on all plaintiffs who were employed by the violator and subjected to at least one alleged violation,” it does not disappear even if the individual claim is sent to arbitration. If this were the case, the court determined, it would “severely curtail PAGA’s ability to police Labor Code violations.” In requiring the plaintiff to arbitrate his individuals claims, and litigate the representative claims, the Galarsa court found that no singular cause of action was being split, so plaintiff could maintain both actions simultaneously because they were seeking to vindicate different “primary rights.”
Similarly, the Court of Appeal in Piplack found that PAGA standing only requires two things: (1) “someone who was employed by the alleged violator,” (2) “against whom one or more of the alleged violations was committed.” If a plaintiff satisfies these two requirements, he has standing to pursue representative, non-individual PAGA claims, regardless of what has happened to his individual PAGA claim. As the court sums it up, “[i]n short, paring away the plaintiff’s individual claims does not deprive the plaintiff of standing to pursue representative claims under PAGA, so long as the plaintiff was employed by the defendant and suffered one or more of the alleged violations.” The Court in Gregg also ruled similarly and ordered the plaintiff’s individual claims to arbitration, while staying his representative claims until completion of arbitration after which those claims may proceed in court.
Employers should read the following SHLC blogs on the use of arbitration agreements in California:
- Important Decision for California Employers Impacting Mandatory Arbitration Agreements
- Federal Ban on Pre-Dispute Arbitration Agreements Covering Sexual Assault or Sexual Harassment Claims Signed by President Biden
Employers should review their existing arbitration agreements, considering the above-referenced decisions, particularly to ensure that the agreement has a comprehensive severability clause. A “severability clause” is a contract provision that keeps the remaining portions of the contract in effect should a court declare one or more of its provisions is unconstitutional, void, or unenforceable. The recent California Court of Appeal decisions also focused on severability causes as they relate to arbitration of PAGA claims, which allowed the courts to send the individual claims to arbitration and allow the representative action to remain in court.
- Contact employment counsel to review your current arbitration agreement or about using an arbitration agreement with employees in the future.
- Review and update any arbitration policies and handbooks.
We will be discussing this and other leave issues in our upcoming California Mid-Year Employment Law Update on June 21, 2023. For more information and to sign up for this and other events, visit our Events Page.