A Viking River Cruises Retrospective: New Challenges to the Use of Arbitration Agreements to Manage PAGA Risks
A Viking River Cruises Retrospective: New Challenges to the Use of Arbitration Agreements to Manage PAGA Risks

Wage and hour claims asserted under the Private Attorneys General Act of 2004 (“PAGA”) are often compared to class actions, but without the same gatekeeping principles. Under PAGA, a single employee can potentially represent hundreds or thousands of other employees for a garden variety of wage and hour allegations, even if the representative did not experience the same violations—and even if the representative only ever experienced one violation. PAGA’s lack of standards, combined with the persnickety character of the Labor Code, are a recipe for “sue first, ask questions later” lawsuits and difficult decisions to fight or fold.

The difficulty is further compounded by PAGA’s peculiar remedy. In a PAGA action, the plaintiff only obtains civil penalties, designed to equate to penalties that the State of California might have assessed itself in a prosecution. For this reason, California courts have historically regarded PAGA lawsuits as immune from arbitration agreements signed by employees. The U.S. Supreme Court stepped in and ruled otherwise under the Federal Arbitration Act. In Viking River Cruises v. Moriana (2022) 142 S.Ct. 1906, the U.S. Supreme Court issued two employer-friendly rulings. First, a plaintiff-employee’s “individual PAGA claims”[1] can be compelled to binding arbitration on an individual basis. Second, interpreting California law, the plaintiff-employee loses standing and cannot pursue the “non-individual PAGA claims,”[2] resulting in a dismissal of the remaining PAGA action entirely.

At first glance, Viking seemed to promise that companies could file a motion to compel individual PAGA arbitration and make the rest of the PAGA case go away. However, recent developments in California law cast new doubts on this hope.

In August 2022, the California Supreme Court picked up review in Adolph v. Uber Technologies, Docket No. S274671, to directly address whether an employee loses or keeps standing for the non-individual PAGA claims when the individual PAGA claims are compelled to arbitration. Because this is a question of state law, the California Supreme Court in Adolph is free to override this portion of the U.S. Supreme Court’s Viking decision, and many experts believe that is exactly what will happen. The implication is that the non-individual PAGA claims in court (the far more significant exposure point) may ultimately be permitted to proceed with the same plaintiff who was compelled to arbitrate his or her individual PAGA claims. Because the anticipated Adolph decision is poised to allow this, trial courts handling motions to compel arbitration are now routinely putting a stay on any non-individual PAGA claims as a way to wait for guidance from the California Supreme Court.

The California Court of Appeal also issued a decision in Gavriiloglou v. Prime Healthcare Management (2022) 83 Cal.App.5th 595. In Gavriiloglou, Prime Healthcare compelled the employee’s personal wage and hour claims, but not individual PAGA claims, to arbitration. The employee also maintained a PAGA action in court for the same theories. Prime Healthcare secured a total victory in the arbitration, where the arbitrator found that none of the violations actually happened. Prime Healthcare moved to dismiss the PAGA claims on the basis of issue preclusion, but the Gavriiloglou court determined that the arbitrator’s findings had no impact on the PAGA claims, as the parties were acting in different capacities and asserting different rights in the arbitration versus in court. This ruling may become more significant if Adolph permits non-individual PAGA actions to proceed, as Gavriiloglou casts doubt on whether a victory in arbitration will have crossover value in the non-individual PAGA action.

Where does this leave employers? Companies are in a difficult holding pattern while awaiting the Adolph ruling. At this point, it is critical that companies facing PAGA lawsuits file a motion to compel arbitration without delay if the plaintiff signed such an agreement. Failing to do so may permanently waive the company’s right to enforce the arbitration agreement, which could foreclose valuable future strategies.

[1] Meaning the portion of PAGA penalties attributed to the violations experienced just by that individual.

[2] Meaning the remaining portion of PAGA penalties attributed to the violations experienced by every other employee the plaintiff purports to represent.

This AALRR post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.

© 2022 Atkinson, Andelson, Loya, Ruud & Romo

Categories: Labor/Employment

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