Employers Can Now Require PAGA Claims Go To Arbitration

Last week, the U.S. Supreme Court closed out its term for the year, during which it recently issued an opinion that is a big win for California employers in Viking River Cruises v. Moriana. The decision will allow employers to keep employee lawsuits under the Private Attorneys General Act (PAGA) out of court, and in arbitration.

What is PAGA?

PAGA is a California law that permits employees to sue their employers for wage and hour violations on behalf of current and former employees. It is essentially a type of “mini class action” lawsuit, permitting employees to sue on behalf of a class of employees without having to jump through the normal class action hurdles.

For example, an employee can bring legal claims for unpaid overtime, meal and rest break violations, and wage statement violations (the typical wage and hour claims in California), on behalf of themselves and current and former employees.

Notably, PAGA has significant penalties that can rack up for each employee in the “class”:

• The default PAGA civil penalty is $100 per employee per pay period for an initial violation and $200 per pay period for any subsequent violations.
• A plaintiff prevailing on a PAGA claim may also recover their attorneys’ fees.

CA Law Had Required All PAGA Claims to Go Through the Court System Instead of Arbitration

Many employers require their employees to sign arbitration agreements so that they can avoid costly and protracted litigation in the court system (which tends to be more favorable for employees), and instead have legal claims litigated in arbitration (which tends to be more favorable for employers). (You can read more about the pros and cons of arbitration here.)

While arbitration agreements are generally enforceable (when properly drafted), California has had an exception for PAGA claims since 2014. Under this exception, even if an employee signed an enforceable arbitration agreement, the employer could not make the employee arbitrate their PAGA claims. Instead, those claims had to go through the court system.

The Supreme Court Has Now Held that PAGA Claims Can be Arbitrated

In Viking River Cruises, the Supreme Court held that an employee who is bound to individually arbitrate claims must prosecute any PAGA claims on an individual basis in arbitration. This means that if an employee has signed a valid arbitration agreement and now brings PAGA claims, they can only sue on behalf of themselves in arbitration, and not on behalf of other current and former employees, significantly reducing the employer’s potential liability. This is a big win for California employers, and a sea change in California arbitration law.

Key Takeaways

• If you are using an arbitration agreement that was drafted within the last 5 years or so, chances are it expressly excludes PAGA claims (so as to conform with the previous CA law on this).
• If so, your agreements should be updated so that PAGA claims are no longer excluded. Otherwise, if you continue using your current version that excludes PAGA claims, you may still be required to litigate those claims in court.

Additionally, a new federal law (HR 4445) was also recently enacted this year, which prohibits mandatory arbitration of sexual harassment and sexual assault claims. This should also be addressed when updating your agreements. In light of these developments, this may be a good time to have your agreements reviewed and updated to ensure the best chances of being enforced should a dispute arise.