Good Tidings for the Holidays! The U.S. Supreme Court Finally Will Review (and May Bury) PAGA’s Anti-Arbitration Rule
While the California Supreme Court has repeatedly upheld arbitration agreements with class action waivers (as they must under the Federal Arbitration Act), in a now infamous (and controversial) decision from 2014, the court held that an arbitration agreement could not include an enforceable waiver of an employee’s right to bring a “representative” action under the California Labor Code Private Attorneys General Act of 2004 (“PAGA”). The court’s decision rested largely on the theory that a PAGA claim is filed by an employee on behalf of the State (and California has never agreed to arbitrate such claims) even though the employees and, especially, their lawyers generally recover more than the state does. See Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014).
This is the reason we affectionately refer to PAGA as the “Prettymuch All Goes to the Attorneys” statute.
Over the years, the U.S. Supreme Court declined time and again to review the California Supreme Court’s decision despite repeated cert petitions—in 2015, 2017, and 2018. (After all, it’s a big country, and the Supreme Court can only spend so much time extricating California from its many follies!) As a result, there emerged a trend of plaintiffs’ lawyers completely abandoning class claims in favor of PAGA-only actions, which were believed to be forever immune from representative action waivers. Until now, maybe…
On December 15, 2021, the U.S. Supreme Court granted cert in Viking River Cruises, Inc. v. Moriana, a 2020 California Court of Appeal decision that reaffirmed Iskanian’s holding. In addition to Viking River, there were a number of other cert petitions challenging Iskanian’s holding before the Supreme Court.
While there is, of course, no way to predict the ultimate outcome in Viking River, many believe that recent changes in the composition of the Supreme Court as well as the Court’s generally pro-arbitration jurisprudence over the past decade (even among liberal justices) suggest that Iskanian’s days may be numbered. And, although the Supreme Court has yet to schedule oral argument in the case, we should have an answer on Iskanian’s fate by the end of the current Supreme Court Term in late June 2022.
In the interim, Iskanian remains the law of this land. But, employers who want to take immediate advantage of a potentially favorable outcome in Viking River should consult with counsel about what steps they should take right now. Certainly, employers should reconsider whether to accept as a foregone conclusion that PAGA claims are and shall always be immune to arbitration/waiver agreements – there is now light at the end of that tunnel. So, employers may consider filing motions to compel arbitration, relying on the Federal Arbitration Act; even if they are initially unsuccessful, Viking River likely will be decided before any appeal could be adjudicated. Further, employers should closely reexamine their arbitration agreements to ensure that the language is sufficiently broad to take advantage of a favorable decision in Viking River.