U.S. Supreme Court’s Viking River Cruises Decision is a Significant Victory for California Employers – At Least For Now

The U.S. Supreme Court’s June 15, 2022 decision in Viking River Cruises v. Moriana could have a tremendous impact upon pending and future litigation, as well as employment practices in the state.

For some California employers, it will impact pending Private Attorneys General Act (“PAGA”) litigation where the named plaintiff has an arbitration agreement with a class and representative action waiver.

For others, they may now want to consider implementing arbitration programs in light of the decision.

But for all employers, they will need to be mindful of the fact that Viking River Cruises may not be the final word on the impact of arbitration agreements on PAGA claims.

The Supreme Court’s decision in Viking River Cruises is undeniably a victory for employers in California who have employment arbitration agreements that contain class and representative action waivers.  But the Court’s conclusion, and how it got there, are very different than what many commentators and attorneys had expected.  And the perhaps unexpected reasoning could lead to some significant developments related to PAGA.

Many had expected the Court to conclude that the California Supreme Court’s Iskanian rule prohibiting waivers of representative PAGA claims was preempted by the FAA in light of Epic Systems.  That might have been a very short opinion leaving no loose threads.

But the Court expressly rejected that argument.  Instead, it went through a somewhat circuitous analysis leading to the conclusion that individual PAGA claims can be subject to arbitration and, in such circumstances, the plaintiff would not have standing to maintain representative PAGA claims as to others because PAGA provides no such mechanism.

The decision will certainly be cheered by employers in California, many of whom will now be able to seek dismissal of PAGA representative claims where the named plaintiffs signed arbitration agreements – and many of whom should have comfort that new PAGA representative claims should not be forthcoming because of those arbitration agreements.

But – and this is a big “but” – the victory could be short-lived.

Had the Court held that the Iskanian Court’s prohibition on waivers of PAGA claims was preempted by the FAA, that decision would have been one that the California courts or legislature likely would not be able to circumvent.  But by concluding that there was no mechanism in PAGA that provided standing for an arbitration-bound plaintiff to pursue representative claims for others, the Court effectively invited the courts or legislature to attempt to create just such a mechanism.

In fact, Justice Sotomayor appears to have invited both the California courts and the California legislature to effectively undo the Viking River Cruises ruling if they wish.  Given the prior rulings of the California Supreme Court and appellate courts on PAGA issues, it would seem likely that the courts would strongly consider accepting that invitation.

But even more likely is that the California legislature would do so.

And unlike the court system, which could take years, the California legislature is in a position to act much more swiftly.  Conceivably, it could act in weeks or months to amend PAGA to provide an express mechanism to provide standing for individuals who must arbitrate their individual claims to pursue representative claims on behalf of others.

Hours after the Viking River Cruises decision was issued, it would not be surprising if legislators were already drafting that very legislation.