California employment law is often in tension with federal law. And that occasionally leads to consequences. Recently, in a highly anticipated case named Viking River Cruises v. Moriana, the U.S. Supreme Court ruled that California’s ban on mandatory arbitration of so-called individual PAGA claims is invalid (i.e., “preempted”) under federal law.
A Quick Overview of PAGA
As we’ve said before, the Private Attorney General Act (“PAGA”) is a California law that allows an employee to sue his or her employer and obtain civil penalties for violations of California’s Labor Code and—this next part is critical—on behalf of every other employee whose Labor Code rights were violated.
In this way, a PAGA action is “representative” in that a single employee (plaintiff) seeks to vindicate the rights of himself (or herself) and others. A PAGA action transforms an otherwise single low-value claim into a high-stakes case akin to a class-action lawsuit.
The Runup to Viking River
In response to PAGA, employers devised a two-fold strategy to minimize the imposition of PAGA civil penalties:
- First, employers compelled employees to sign mandatory arbitration agreements upon hire, requiring that all employment-related disputes be channeled exclusively in arbitration—not state or federal court.
- Second—and within that same arbitration agreement—employers would limit the ability of employees to bring a PAGA claim by stating that the employee could bring such a claim only for violations that the employee personally sustained.
In 2014, however, the California Supreme Court ruled that the second strategy was illegal and unenforceable as a matter of law. In practical terms, this meant that a PAGA claim could be brought in arbitration only if it were allowed to be brought on a representative basis; otherwise, the claim could not be brought in arbitration.
The Viking River Case: A Reversal of California Law
And this is where the Viking River case comes in. In Viking River, the U.S. Supreme Court held that the California Supreme Court’s 2014 ruling was illegal under federal law because, among other reasons, it curtailed the freedom of parties “to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate.’” As such, the U.S. Supreme Court held that California could no longer prevent employers from enforcing written agreements that compel employees to arbitrate PAGA claims on an individual basis.
But Doesn’t California Law Ban Employer-Employee Arbitration Agreements?
Astute readers may be puzzled, asking, “But, doesn’t California ban compulsory employer-employee arbitration agreements? And, if so, doesn’t the United States Supreme Court’s decision overturn that ban?” Great questions.
The answer to the first question is easy: Yes, California bans compulsory employer-employee arbitration agreements. As we’ve reported before, a few years ago, California enacted AB 51 (now Labor Code section 432.6), a law which forbids employers from compelling employees from signing an arbitration agreement as a condition, or continued condition, of employment.
The answer to the second question is trickier and, alas, will lack a definite answer until a court explicitly rules on that question. That said, at this juncture, it appears that Viking River at most effects a limited—not wholesale—reversal of California’s general ban on compulsory employer-employee arbitration agreements. There are at least two reasons for this:
- First, the U.S. Supreme Court did not discuss, mention, or even cite AB 51 in this decision, meaning that the Court did not consider its Viking River ruling in the larger context of California’s arbitration ban.
- Second, the U.S. Court of Appeal for the Ninth Circuit (the federal court of appeal that embraces California) explicitly affirmed the legality of AB 51 last January in a case known as Chamber of Commerce v. Bonta. However, the U.S. Supreme Court did not mention, consider, or even cite this decision in Viking River. While the Ninth Circuit may reverse itself in light of the Viking River decision, it has not done so today, and its prior decision still stands.
As such, we hesitate to infer too much about Viking River.
So, where Does that Leave California Employers?
So, where does this (messy) state of affairs leave employers with respect to arbitration agreements? Employers, in theory, have a few options at this point:
- Employers can continue not to implement any sort of arbitration agreement and wait for the law to settle some more;
- Employers can implement arbitration agreements to compel arbitration of the very claim allowed by the U.S. Supreme Court in Viking River, but make all other Labor Code claims subject to voluntary arbitration;
- Employers can act as though the Ninth Circuit will reverse our state’s general ban on compulsory arbitration agreements and compel all Labor Code claims (whether mentioned in the Supreme Court case or not).
If you have further questions or would like more information on how Viking River affects your business, please contact us at info@mnklawyers.com.
This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.
