California is complicated for employers — and a recent case, Viking River Cruises, Inc. v. Moriana, is just one more example.

The Private Attorneys General Act of 2004 (PAGA) authorized California employees to sue employers for violations of California’s labor code. An individual can bring an action on behalf of himself or herself and other aggrieved employees — essentially a collective action. Also, California law allows the PAGA-filing individual to join other claims against an employer, even if the individual plaintiff has not suffered such an injury. Pretty broad stuff!

But I Have an Arbitration Agreement! Doesn’t It Cover This?

Viking Cruises had a California employee, Angie Moriana, who executed an arbitration agreement as part of her employment. The agreement included a “class action waiver” that prohibited her from bringing any representative action on behalf of other employees — including a PAGA action — in arbitration. After she left Viking, Moriana brought a PAGA action against Viking for her alleged lost wages, but also for other labor claims on behalf of other Viking employees. Relying on the arbitration agreement, Viking moved to compel arbitration for her individual claims and to dismiss the PAGA claims on behalf of the other employees. California state courts denied Viking’s motion and its appeal, claiming that public policy under PAGA prohibited the class action waiver. Viking appealed to the United States Supreme Court, which agreed to hear the case.

Agreement Matters Under the Federal Arbitration Act

The Supreme Court’s lengthy opinion analyzes the conflict between PAGA and the Federal Arbitration Act (FAA). Ultimately, the Court found it very important that Moriana agreed to the arbitration when she signed her employment agreement. The Court noted that the FAA’s mandate is to enforce arbitration agreements. Arbitration does not alter substantive rights it simply changes the forum and process through which parties adjudicate those rights.

The Court also focused on the distinct differences between the “representative” nature of a class action plaintiff versus a PAGA plaintiff. A class action plaintiff must adequately represent the entire class (e.g., suffer similar injuries). Under PAGA, a plaintiff can bring an action and join completely unrelated employment claims, even those for injuries that the plaintiff has not suffered. The Court held that its past interpretations of the FAA hold that states cannot “coerce individuals into forgoing arbitration by taking the individualized and informal procedures characteristic of traditional arbitration off the table.” However, the Court does not say that all waivers of class or representative actions are automatically enforceable under the FAA. Instead, the Court noted that a typical class action plaintiff brings claims on behalf of absent parties because the individual plaintiff adequately represents their interests; by contrast, PAGA’s structure allows an individual to bring claims on behalf of absent parties that are wholly separate from the individual’s own situation. The Court said that state law could not force the employer to arbitrate claims (such as the PAGA claims) that it had not agreed to arbitrate in the first place.

Complicated Ending

Ultimately, the Court held that Moriana must arbitrate her individual employment claims. The question was what to do with the PAGA claims she had also joined in the suit. The arbitration agreement she signed included a severability clause, meaning that covered claims must be arbitrated even if other claims need not be. The PAGA claims were not covered by the arbitration agreement, but since Moriana’s individual claims were required to be arbitrated, she lost the standing to bring the PAGA claims on behalf of other, non-related absent parties. Accordingly, the Court found that those claims were due to be dismissed.

So, Is a Class Action Waiver Enforceable in California?

As the Court stated, its decision does not mean that all class action waivers in arbitration agreements are automatically enforceable. However, due to the joinder and representative structure of PAGA, non-related claims brought by an individual plaintiff under that statute may be severed and possibly dismissed if the plaintiff’s individual claims are subject to arbitration. It is likely important that your arbitration and class action waiver agreement include a severability savings clause. You can bet that PAGA will continue to generate lots of litigation and conflicting interpretations. Employers with California employees need to examine any arbitration agreements and check on severability and waiver issues.