In Viking River Cruises v. Moriana the U.S. Supreme Court held 8-1 that the Federal Arbitration Acts (FAA) preempt a holding of the California Supreme Court “insofar as it precludes division of [California private attorney general] actions into individual and non-individual claims through an agreement to arbitrate.”
California’s Labor Code Private Attorneys General Act (PAGA) allows an employee to bring a lawsuit on behalf of himself and herself and other current or former employees as an “agent or proxy” of the state. Angie Moriana brought a PAGA action in federal court claiming Viking River Cruises failed to pay her final wages within 72 hours and committed a number of different labor code violations involving other employees.
When she was hired, Moriana agreed to arbitrate any disputes arising from her employment. She also agreed to a class action waiver stating she wouldn’t bring a PAGA action in arbitration. The waiver contained a severability clause stating that if it was invalid PAGA actions could be litigated in court and that if any portion of the waiver was valid it would be enforced in arbitration.
Viking moved to compel arbitration of Moriana’s “individual” PAGA claims and to dismiss her other PAGA claims. Relying on a 2014 California Supreme Court decision, Iskanian v. CLS Transp. Los Angeles, the California Court of Appeals refused. In Iskanian the California Supreme Court held that waivers of the right to bring PAGA claims are invalid. Iskanian secondary rule, as described by Justice Alito writing for the U.S. Supreme Court, invalidates agreements to separately arbitrate or litigate individual PAGA claims “on the theory that resolving victim-specific claims in separate arbitrations does not serve the deterrent purpose of PAGA.”
Applying Iskanian’s primary holding the California Court of Appeals concluded the waiver to not bring PAGA actions was invalid. Per Iskanian’s secondary holding, according to the California Court of Appeals, Moriana’s individual PAGA claim couldn’t be arbitrated because it couldn’t be separated from the other PAGA claims she brought.
Section 2 of the FAA makes arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
According to the U.S. Supreme Court the FAA preempts Iskanian’s secondary rule prohibiting individual and non-individual PAGA claims from being heard apart. “This prohibition on contractual division of PAGA actions into constituent claims unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate,’ and does so in a way that violates the fundamental principle that ‘arbitration is a matter of consent.’”
The U.S. Supreme Court concluded that Iskanian’s holding that the waiver is invalid isn’t preempted by the FAA. “But the severability clause in the agreement provides that if the waiver provision is invalid in some respect, any ‘portion’ of the waiver that remains valid must still be ‘enforced in arbitration.’ Based on this clause, Viking was entitled to enforce the agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim. The [California Court of Appeals] refused to do so based on the rule that PAGA actions cannot be divided into individual and non-individual claims. Under our holding, that rule is preempted, so Viking is entitled to compel arbitration of Moriana’s individual claim.”
The U.S. Supreme Court also held that Moriana’s non-individual claims should be dismissed due to a lack of standing.
Justice Thomas dissented because he doesn’t believe the Federal Arbitration Act applies to state court proceedings. “Accordingly, the FAA does not require California’s courts to enforce an arbitration agreement that forbids an employee to invoke the State’s Private Attorneys General Act.”