By Eric D. Morton
This month, the U.S. Supreme Court ruled that California employees can waive the right to bring legal actions on behalf of other employees. The case specifically concerned California Private Attorney General Act (PAGA). A PAGA case is similar to a class action lawsuit. Under PAGA, an employee bringing a lawsuit for Labor Code violations can also assert PAGA claims on behalf of other employees of the same employer. The employee bringing the PAGA claim can obtain attorneys fees and a percentage of civil penalties that may be awarded against the employer.
In the case of Viking River Cruises, Inc. v. Moriana, a California worker signed an employment contract in which she agreed to arbitrate disputes on an individual basis, and waived any right to bring class, collective, or representative actions. The employee filed a PAGA claim against her employer for not timely paying her and for other unrelated California Labor Code violations on behalf other employees. The employer moved to compel arbitration of her individual claim and to dismiss the claims asserted on behalf of other employees. The trial court denied the motion, holding that California law precluded waivers of PAGA claims and that PAGA claims cannot be split into arbitrable individual claims and non-arbitrable representative claims. The California Court of Appeal affirmed that order. The U.S. Supreme Court reversed.
The U.S. Supreme Court held that the Federal Arbitration Act (FAA) pre-empted California law. The court ruled that under the FAA, employees can agreed to arbitrate their individual claims against their employers and waive the right to bring class or representative proceedings (which includes collective PAGA claims). Furthermore, since PAGA claims on behalf of other employees cannot be arbitrated, an employee who agrees to an arbitration clause can’t bring a PAGA claim on behalf of other employees.
The Viking River Cruises case is one of a line of cases decided by the Supreme Court in favor of arbitration clauses in a variety of contracts. For instance, the FAA has been the basis for precluding state consumer class action cases.
Implications for California Employers
This case has potentially important implications for California employers, particularly those with large numbers of employees. A former employee with a simple Labor Code violation claim can bring a PAGA case on behalf of several other employees with potentially large liability to the employer. A well written arbitration clause in an employment contract can prevent such a case. Most California employers should consider adding an arbitration clause to their employment contracts. There are pro and cons to arbitration – arbitration can be expensive for the employer. However, avoiding an even more expensive PAGA lawsuit by a former employee might make including an arbitration clause worthwhile.
Eric D. Morton is the principal attorney of Clear Sky Law Group, P.C. He can be contacted at emorton@clearskylaw.com, 760-722-6582, or 510-556-0367.