Arbitration Agreements Apply to Individual PAGA Claims

California’s Private Attorneys General Act (PAGA) authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. Enacted in 2004, the purpose of PAGA was to increase enforcement of the Labor Code by allowing citizens to privately enforce the Labor Code on behalf of the State.

On June 15, 2022, the U.S. Supreme Court held that arbitration agreements apply to employee claims brought under PAGA, and that individualized PAGA claims may be compelled to arbitration (see Viking River Cruises v. Moriana, No 20-15173). The U.S. Supreme Court also held that an individual whose PAGA claims are compelled to individual arbitration loses standing to maintain any non-individual PAGA claims. In other words, compelling the arbitration of an individual PAGA representative’s PAGA claims also results in the dismissal of the representative PAGA claims. Thus, a valid arbitration agreement can now be used to not only compel the plaintiff’s individual PAGA claim to arbitration, but also to dismiss the “non-individual” PAGA claim.

This is an encouraging development for California employers especially, as they have faced an increasing number of costly PAGA actions in recent years. Employees with enforceable arbitration agreements may now be compelled to arbitrate PAGA claims on an individual basis, which would result in the dismissal of the non-individual portion of any PAGA action. While this represents a positive impact for employers in an increasingly employee-friendly state, the reasoning behind the decision may unfortunately result in that impact being diminished.

As it currently stands, PAGA does not have a mechanism for group claims when the individual who sued is compelled into individual arbitration. Since there is no mechanism in PAGA that provides standing for an arbitration plaintiff to pursue representative claims for others, the U.S. Supreme Court concluded that the plaintiff’s non-individual representative claims had to be dismissed when she was compelled to arbitration. However, in so doing, the Court essentially invited California’s legislature to create such a mechanism. Thus, California’s legislature could and likely will propose an amendment to PAGA to allow for representative claims to survive in court even when an individual claim has been sent to arbitration.

Until then, California employers are encouraged to utilize the Viking ruling while it is still enforceable. California employers that use arbitration agreements should make every effort to compel individual arbitration in any active PAGA representative action lawsuit. If successful, employers should then seek dismissal of any representative PAGA claims in that lawsuit.