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California Employers Finally Have

Good News for Arbitrating PAGA Claims 

Dear Clients and Friends:
On June 15, 2022, the U.S. Supreme Court ruled that employees can, in certain circumstances, be required to arbitrate their own ("individual") claims brought under California's Private Attorneys General Act ("PAGA").  The Court held that, as a result, a related "group" PAGA claim would in that case need to be dismissed.  Stated differently, once an employee's individual PAGA claims are sent to arbitration, the employee lacks standing to pursue the PAGA lawsuit on behalf of other employees, and the group PAGA claim would need to be dismissed.  Here is a link to the full U.S. Supreme Court decision.  Detail on why this decision matters to you and how to take full advantage of the decision is outlined below. 
Separately, on Tuesday, June 28, from 9:00 a.m. to 10:00 a.m. we will be presenting a free one-hour interactive (virtual) briefing on the implications of the Viking River Cruises decision.  Through the briefing you will learn in practical terms what this decision means for you:  why you may want to adopt an arbitration agreement program, what decisions you need to make in doing so, what this decision may mean for your current agreements and pending cases, and practical next steps to take in taking full advantage of this decision.  Let us know if you would like to join us, and we will send you more information. 

The Legal Backdrop for Viking River Cruises:  
  • Some background on PAGAPAGA was enacted in 2004 with the purpose of increasing enforcement of California Labor Code wage and hour laws against employers violating those laws.  Known informally as the “bounty hunter” law, PAGA empowers employees to bring lawsuits on behalf of the State of California for civil penalties based on Labor Code violations.  In a PAGA lawsuit, 25% of the penalties are paid to allegedly aggrieved employees, and 75% goes to the State of California.  PAGA allows an employee to collect civil penalties not only for Labor Code violations that the employee personally experienced ("individual claims"), but also for violations affecting other employees ("group claims").  Plaintiffs also recover their attorneys’ fees and costs.  This means that PAGA lawsuits can quickly escalate into million or multimillion dollar exposure.  

  • Some insight on arbitration agreements and the history of PAGA arbitration: An arbitration agreement allows employers and employees to waive their right to sue in court and to instead choose to have their dispute heard by a neutral third party.  Arbitration is distinct from court in that it is less formal, there are no juries, and the proceedings are not public. 

    Arbitration agreements took on great significance for employers when courts allowed arbitration agreements to include language waiving the parties’ rights to bring class or collective action lawsuits.  PAGA claims, however, were not subject to arbitration.  Practically speaking, this meant that an employer could implement an arbitration agreement that would bar wage and hour class actions, and still need to defend a group PAGA case.   Here is a link to one of our prior newsletters on the then-status of arbitration agreements.   

    Specifically, prior to Viking River Cruises, waivers of PAGA actions in arbitration agreements were considered unenforceable.  This finding was made by the California Supreme Court in a 2014 case called Iskanian v. CLS Transportation Los Angeles (“Iskanian”).  With no diversion to arbitration, PAGA lawsuits have been filed at unprecedented rates, with serious consequences to California employers.  All that just changed.

The Viking River Cruises Decision: 
Viking River Cruises asked the trial court to mandate arbitration of the named plaintiff's ("Moriana's") individual claims to arbitration and to dismiss the PAGA claim that she brought on behalf of other employees.  This request was based on the wording of an arbitration agreement Moriana had signed.
Both the California trial court and Court of Appeals held that, per the Iskanian decision, employees could not waive their right to bring a PAGA lawsuit in court.  
The U.S. Supreme Court disagreed and ruled that Moriana, by virtue of the express language of the arbitration agreement she signed, was required to bring her individual PAGA claims (for Labor Code violations she personally suffered) in arbitration, rather than in court.  The Supreme Court further held that once Moriana was compelled to arbitrate her individual PAGA claim, she lacked standing to pursue group PAGA claims on behalf of other employees.  The group PAGA claims against Viking River Cruises therefore were dismissed.

Why This is a Huge (We Hope) Win for California Employers:   
With this ruling, employers now have an opportunity to block group PAGA lawsuits through arbitration.  Where they do so, rather than fighting these group PAGA claims in court, employers instead will defend against individual PAGA claims in arbitration.  
Having said this, nothing ever is completely straightforward, right?  While the Supreme Court’s decision is a win for California employers, the case leaves many questions unanswered.  We expect further court rulings and possibly legislative action in the coming months and years, so stay tuned.  
Separately, there remain a multitude of unanswered legal questions surrounding arbitration agreements, including: 
  • Whether employers can mandate arbitration agreements or must make them voluntary (a question awaiting potential en banc appellate review); 

  • Whether the specific language used in an arbitration agreement is sufficient to defeat PAGA claims; and 

  • Whether the manner in which the agreement is presented to employees is legally sufficient.

What Can You Do Today to Protect Your Company from Group PAGA Claims?  
In light of this landmark decision, consider adopting a practice of arbitration of employment law claims that aligns with the requirements outlined in Viking River Cruises.  
  • If you already know you are ready to implement arbitration agreements in your workplace, we have made that easy for you.  Our Arbitration Protection Program includes:

    (1)     Up to one hour with one of our attorneys to determine which arbitration agreement and process is best for your workplace; 

    (2)     An arbitration agreement tailored to your unique workplace; 

    (3)     Step-by-step guidance on how to implement arbitration
    agreements with your employees; 

    (4)     Speaking points you can use for communicating with your employees, including questions to anticipate (and answers to those questions) communications. 

    The Arbitration Protection Program has a registration fee of $750 per company.  
  • If you aren't using arbitration agreements, consider whether doing so is right for your workplace.   Let us know if you would like some help in making this decision.  Reach out here

  • If you already have arbitration agreements in place, review them to ensure they satisfy the latest legal requirements and recommendations.  Now is a good time to review those agreements (and the process you used to implement those agreements) to ensure you have satisfied the guidance outlined in the Viking River Cruises decision.  Contact us if you would like help doing that.

  • Once you make the decision to implement or update your arbitration agreement, make sure the process you follow with new or existing employees will support their enforceability. 

  • Of course, your first best defense is to avoid wage and hour claims altogether by reviewing your compensation and payroll practices, and correcting any mistteps before they result in litigation.  Let us know if you want some help doing that!  

We Are Here For You
We look forward to seeing you on June 28, 2022 at 9:00 a.m. where you will learn in practical terms what the Viking River Cruises decision means for you.  Please let us know if you would like to attend.  
We hope this information is helpful as you navigate the recent developments and constantly changing laws.  Please stay tuned, we will continue keeping you updated.  And please, reach out if you have questions or just want to talk. 
©2022 Schor Vogelzang & Chung LLP
2170 Fourth Avenue • San Diego CA 92101
619 906 2400 (p) • 619 906 2401 (f) • www.svclegal.com
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