Viking River Cruises and Other Changes Poised to Rock the Boat on Arbitration Agreements
Employers regularly rely on agreements to arbitrate in order to manage their workplace risks, but the state of the law is in flux—leaving employers with questions. An arbitration agreement is any agreement for the parties to litigate in private arbitration rather than in court, and agreements can be reached by employers individually with the employees or collectively through a collective bargaining agreement (“CBA”) with arbitration provisions. Arbitration agreements will usually have a class waiver, preventing litigation from becoming a multi-million dollar class action.
Arbitration generally carries the advantages of lowering litigation complexity, avoiding irrational jury verdicts, and limiting exposure to individual claims. Downsides include that employers must foot the expensive bill for arbitration—and arbitrations carry virtually no right to appeal an unfavorable award. Businesses often find the advantages outweigh the downsides.
Both California and federal law strongly favor agreements to arbitrate, but federal law is stronger due to the Federal Arbitration Act (“FAA”). The FAA mandates enforcement of arbitration agreements over employee objections in most instances. Challenges to arbitration agreements under the FAA are limited to very narrow grounds, such as fraud, duress, or unconscionability. Moreover, the FAA strongly favors class action waivers, ensuring the arbitration remains individualized. But this favor does not historically extend to claims under California’s Private Attorneys General Act of 2004 (“PAGA”). The Supreme Court of the United States may change this soon.
California enacted PAGA in 2004 to enhance wage and hour enforcement. PAGA authorizes private lawsuits by any employee against their employer—on behalf of all company employees—for civil penalties triggered by any violation of the Labor Code. Unlike class actions, PAGA has low procedural and evidentiary barriers before trial, but the level of civil penalties rivals or exceeds a comparable class action. The explosion in PAGA litigation over the last decade has been alarming to California businesses, to say the least.
But arbitration agreements and attempts to implement representative waivers are historically to no avail. California views PAGA as fundamentally a substitute for a law enforcement action and accordingly regards PAGA claims as immune from arbitration. The California Supreme Court articulated this view in Iskanian v. CLS Transportation Los Angeles (2014) 59 Cal.4th 348, which later lower court rulings further refined and which is now colloquially regarded as the Iskanian rule. Naturally, the Iskanian rule makes PAGA-only litigation the weapon of choice for many litigants.
The Supreme Court of the United States agreed to review a challenge to the Iskanian rule in the matter entitled Viking River Cruises v. Moriana (Dkt. No. 20-1573). The case presents an opportunity for the Court to directly rule whether an arbitration agreement purporting to waive PAGA proceedings must be enforced under the FAA. Key considerations may include how much control the State can delegate to employees before PAGA enters the FAA’s scope.
Stay tuned for a ruling by July 2022. Possible outcomes may range from complete waivers of PAGA to limiting PAGA claims to arbitration with conditions. After the Supreme Court rules, California can always amend PAGA to work around the ruling, while Congress could always amend the FAA to exclude wage and hour claims altogether. Regardless, Viking River Cruises is a case to watch.
Construction industry employers may take heart that Labor Code section 2699.6 already provides an exemption from PAGA for any construction industry employee covered by a qualifying CBA. To qualify, a CBA must:
- Address wages, hours of work, working conditions, and overtime pay
- Guarantee employees at least 30% more than the state minimum wage
- Clearly and unambiguous waive the requirements of PAGA
- Prohibit all Labor Code violations that would be subject to redress by PAGA
- Provide a grievance and binding arbitration procedure for those Labor Code claims
- Authorize the arbitrator to award all remedies otherwise available under the Labor Code, except any penalty payable to the Labor & Workforce Development Agency
Janitorial services enjoy a similar exemption, and the Labor Code is speckled with CBA-based exemptions. These are useful benefits to companies that choose to bargain with a union, but companies should ensure their CBAs qualify with the assistance of counsel.
Employers should also take note of several other significant changes in arbitration.
The “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act”—also known as H.R. 4445—was enacted in March 2022. H.R. 4445 exempts sexual assault and sexual harassment claims from the FAA if the claims arose or accrued after the law passed. The exemption is at the accuser’s sole election. This means that employers can no longer invoke the FAA going forward in cases related to sexual assault and sexual harassment disputes. Exactly how “related” the case must be is unclear — and sure to become a flashpoint of ongoing litigation and uncertainty.
The National Labor Relations Board’s General Counsel intends to scrutinize how and when arbitration agreements are implemented as potential unfair labor practices under the National Labor Relations Act. There will be more information to come on this issue as charges are filed and investigated.
Finally, be on the lookout for developments in litigation over Assembly Bill 51 (“AB 51”). AB 51 prohibits requiring employees, as a condition of employment, to sign agreements to arbitrate California Fair Employment and Housing Act or Labor Code claims. The law carries potential criminal charges for forcing the arbitration agreements on employees, but appears to have no impact on a company’s right to enforce valid agreements once signed. Business associations obtained an injunction against AB 51 as soon as it passed. (See Chamber of Commerce of the United States v. Bonta (9th Cir. 2021) D.C. No. 2:19-cv-02456). AB 51 is currently paused on appeal awaiting further consideration (after a confusing panel ruling) by the 9th Circuit, which has decided to hold off until the Supreme Court of the United States rules on Viking River Cruises v. Moriana. For now, the AB 51 injunction will stay in place for those arbitration agreements covered by the FAA.
Employers should review their existing arbitration agreements, and CBAs as applicable, with the assistance of experienced employment counsel and consider applicable changes. Employers with questions and in need of assistance should contact the authors or their usual counsel at Atkinson, Andelson, Loya, Ruud & Romo for guidance.