Episode 154: What Supreme Court Ruling on Arbitration and PAGA Means for Employers

Welcome to the Workplace, a podcast by Cal Chamber. I'm Matthew Roberts, the Labor Law helpline manager and Employment Law Council with the California Chamber of Commerce. So each October starts a new term for the U.S. supreme Court that usually sees the most anticipated decisions issued in the following summer. And many times the Court will issue rulings that have a significant impact on employment law. For example, in June 2020, the US Supreme Court held that federal Title VII protects employees from discrimination based upon their sexual orientation or gender identity under the statute's prohibition on sex discrimination. Although those were protected classes in California for several years prior to that decision, this decision applied those protections nationwide and really was a groundbreaking change to employment discrimination rules. Last summer, the Court found that a California agricultural labor relations regulation, which allowed union organizers substantial and persistent access to employer property, to be unconstitutional. Earlier this year, the court, of course, determined that the federal government could not require employers with 100 or more employees to implement mandatory COVID 19 vaccines. And this summer, the court has seemingly dominated the newsroom for weeks now with high profile decisions across many complex policy issues. Nestled among these high profile decisions this year is yet another case that has impact on California law. The case, Viking River Cruises vs. Moriana, addresses employment arbitration and the California Private Attorneys Generals act, or what's otherwise known as paga, to discuss this decision and what it means for California employers going forward, we welcome back Cal Chambers, Vice President of Employment Law, Content Training and Advice, Bianca Saad. Thanks for taking the time to be with us today, Bianca.

Thanks for having me, Matt. It's always a pleasure, of course.

And you know, here at the Chamber, PAGA is something that we've always been concerned about, and it's this acronym that's out there and employers have kind of heard of it. Sometimes they've been victims of it and they really know what it is. So I really think we should start with you, refreshing the listeners just generally on what PAGGA is before we get into the meat and potatoes of the Viking River Cruises case.

Yeah, definitely. So the PAGA is something that allows employees to file lawsuits on behalf of the state to recover civil penalties specified in the labor Code. So under the paga, individuals can file those claims for themselves and on behalf of other employees, creating a representative action that greatly expands the potential impact and penalties. Now, PAGA claims have become increasingly popular in California because it's easier to bring PAGA representative actions than traditional class actions. Plaintiffs could bring claims for alleged violations that they didn't personally experience, and the penalties are harsh. Common PAGA actions have included wage statement Violations, rest and meal break penalties, failure to pay overtime or minimum wages. So because the primary driver of PAGA actions is attorneys fees awarded, PAGA has disproportionately impacted the business community in relation to the actual value at which they provide the workers.

Yeah. And that really highlights the issue that we have here in the chamber with PAGA actions. For example, we've had recent litigation where attorneys have filed suit against employers because their pay stubs didn't have the plus four zip code on them. Right. So our zip code here in Sacramento is any number of them, but we'll just throw out 95814. Right. The lawsuit alleged that their pay stub needed to have that plus those that secondary four digits on the back of it, basically the zip plus four. And litigation was filed on that basis in a PAGA action because the attorneys are seeking attorney's fees, not so much because they're trying to correct some egregious wrong that happened here. Right, Bianca?

Yeah, that's absolutely right. And it's sometimes referred to as kind of this gotcha game that we play. Right. Where it's not, again, it's not about the interests of the employees or that rights were really, truly violated or there's any loss. But really, what are these technical violations that we can catch the employer in in order to make a claim?

Okay, so let's move into the actual case here. Viking River Cruises versus Moriana. What was that issue before the Supreme Court with regards to paga, and what was going on with Moriana's lawsuit?

Yeah, so Moriana was a former employee of Viking River Cruises, and she had signed an employment arbitration agreement. Now, this agreement had prevented her from bringing a PAGA action, and it otherwise forced her to arbitrate her individual PAGA claim and dismiss the representative action. Now, California, up to this point, under the Ascanian case, has had this prohibition on wholesale waiver of PAGA claims. And alongside that, there's another holding under Ascanian that has this idea that you cannot actually split or divide the PAGA action. So that is to separate an individual PAGA claim from a non individual or representative PAGA claim.

Right. So essentially taking Moriana and forcing her into arbitration while leaving the rest of the class action in court is what was the issue with Askanian. So then what did the US Supreme Court decide in this case as it got up to them?

Yeah. So the Supreme Court was really asked to look at, you know, whether this California law that's preventing that division of the PAGA actions in this way is that something that's preempted by the Federal Arbitration Act. And the decision, you know, is pretty technical and nuanced, but really what it came down to was the court held a couple of things. First, the court found that Moriana's individual PAGA claims could indeed be forced into arbitration. They recognized that there was this valid arbitration agreement. The court also recognized, however, that the employer could not compel the representative action to arbitration. Now, along those lines, the court also held that this rule under the Ascanian case that says you can't split PAGA claims by those that are individual and those that are non individual, that that rule is preempted by the FAA's broad enforcement of arbitration agreements.

And so then we're sitting with the practical reality that Moriana is forced into arbitration and with nobody left to bring the representative action, it just goes away, right, Bianca?

Yeah, that's exactly right. It effectively ends that representative action that would have otherwise have been litigated in court.

Now, unlike other decisions that we've seen recently on the Supreme Court, this one wasn't particularly controversial in that overall, eight of the nine justices decided to side with the majority in this and agreed with the overall holding. However, they all issued some different concurrences and the like. And Justice Sotomayor authored a very brief concurring opinion. I believe it was about one full page that highlighted a very important issue and some practical realities of this case. What was she talking about there?

Yeah, so first, you know, she, she reiterates that, you know, she agrees with the court's holding that, you know, PAGA is preempted only to the extent, again, that it's precluding this division of PAGA actions right into the individual and the non individual claims. But then she leaves this door open. And it was really fascinating. So first she acknowledges that you, you know, this is based on the Supreme Court's understanding of the state law. But of course, if the Supreme Court's understanding is wrong, then the California courts will have the last word. And then she takes it even a step further. And she also says, you know, alternatively, this is something, the standing issue, the fact that Moriana is no longer has standing. This is something that the legislature could be free to modify and correct in some way. Again, really leaving that door open for what can transpire in the future.

Yeah, and I think we can use a crystal ball and look at that correction would really be, even if you force Moriana into arbitration, she adjudicates all of her claims there, resolves her claims she'll still have standing at the end of the day to continue to represent that class in court. Has the legislature picked up on any of this?

Yeah, actually they have. So the chair of the Senate labor and Employment Committee, Senator Cortese, on that same day issued a statement committing to the changes that Sotomayor had suggested. Again, this idea being that any changes would allow for a plaintiff like Moriana to continue those non individual claims in court even after being compelled to arbitrate her own individual claims.

Okay, Bianca, so we've spent probably about the last 10 minutes talking about a lot of litigation tactics, and I know something that you and I are fond of as former litigators, but there continues to be broader arbitration litigation that now actually has the wheels moving again now that Viking River Cruises is done. And that litigation involves what's known as AB51. So, Bianca, talk to us about AB51 and talk to us about where the litigation is on that.

Yes. So AB51, as a refresher for those who may not recall, is the ban on the mandatory arbitration agreements in California. So it was something that again was prohibiting employers from mandating arbitration agreements as a condition of employment for applications or a condition of continued employment for employees. In other words, the arbitration has to be voluntary. Well, that ban was supposed to take effect January 1, 2020. Cal Chamber led a coalition to prevent the enforcement of it, which was successful at the trial level. And then on appeal at the 9th Circuit, that was reversed and the ban was reinstated. Thereafter, Kal Chamber petitioned for the entire 9th Circuit to rule on the issue. And shortly after that petition was held, as we were waiting for this United States Supreme Court decision on Viking river, knowing that that would be a very consequential decision. So with that, the litigation is still pending in the Ninth Circuit and the ban is stayed, and we are going to have to see what happens with AB51.

Okay, so then, of course, the million dollar question that I'm seeing on the helpline and that I know a lot of our members have had is what does this mean for us if we want to use mandatory arbitration agreements going forward with new hires and existing employees, if we've had that practice in the past, or if we've now seen the Viking River Cruises decision and say, hey, that's kind of neat that we can do that with PAGA actions because they're a huge pain. And what does it mean for employers with regards to arbitration agreements at this point?

Yeah. So in light of Viking River Cruises, which is a win, however, again with that big caveat of course, with that door that was left open with Justice Sotomayor's concurring opinion. So this is definitely not the end of the story. So number one, people should keep that in mind. But nevertheless, in light of Viking Rivers, employers can certainly be encouraged to pursue the use of arbitration agreements, but they should do so with the assistance of legal counsel. And also keeping in mind the effect of the current AB51 litigation on mandatory agreements, keeping in mind that any agreement signed since January 1, 2020, may be held void depending on the outcome of the litigation. Regardless of the litigation, though, we do know that any agreement signed prior to January 1, 2020 will continue to be valid. So. And then the last point I would say is, again, even with Viking river cruises and AB51 litigation set aside, there are always going to be procedural and substantive issues that employers need to consider and review when it comes to arbitration agreements, because these arbitration agreements are very frequently challenged in court. So when drafting an agreement, it's important that again, to consult with competent legal counsel, have their assistance, make sure that everything about the agreement is going to be enforceable down the road.

Yeah, Bianca, that was quite a ride into the world of employment arbitration agreements. So thank you for educating all of us here on the podcast.

Thank you so much for having me. It's always a pleasure.

And thank you listeners for joining this discussion on the workplace. Please comment, share and subscribe to Cal Chamber's podcast by visiting Cal Chamber or dot com.