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Patchwork of SCOTUS Justices Say Employers Can Force Certain Employee Lawsuits into Private Arbitration Despite California Preference for State Courts

U.S. Supreme Court via Supreme Court of the United States

The Roberts Court, April 23, 2021.

The U.S. Supreme Court on Wednesday ruled that a California state law that forces certain employment disputes into state courts did not apply to a case involving a former employee and a cruise line.

Some employers ask employees to sign mandatory arbitration agreements — clauses which keep labor disputes out of state courts and instead place the proceedings before private arbitrators.  California law discourages that practice and even says those agreements are not always enforceable against employees.

However, the justices of the Supreme Court ruled on Wednesday that a federal law preempted the California law in question.

The California law is called the Private Attorneys General Act (PAGA).  It says individual employees may act as “private attorneys general” by bringing private lawsuits against employers on behalf of both the entire workforce and the State of California. The idea essentially gives private parties the power to enforce the state’s labor laws without tying up the state’s own legal forces.

PAGA also allows plaintiffs who sue on behalf of other employees to have their claims heard in court — a direct contradiction with arbitration clauses that oftentimes prohibit representative actions.

On Wednesday, the Supreme Court ruled in Moriana v. Viking River Cruises that the Federal Arbitration Act (FAA) preempted PAGA’s provision against dividing PAGA actions into individual claims.

At the heart of the case was a dispute between plaintiff Angie Moriana and her former employer, Viking River Cruises. Moriana sued Viking after leaving her sales position with the company, alleging that it didn’t provide her with her final wages within 72 hours, as required by California law.

Her lawsuit also alleged a number of other violations against other Viking employees, including violations of laws regarding minimum wage, overtime, meal periods, rest periods timing of pay, and pay statements.

As Law&Crime previously reported, Moriana had signed an employment contract with Viking in which she agreed that any dispute arising out of her employment there — including representative claims on behalf of similarly-situated employees — would be subject to arbitration and not to private litigation.

California law prohibits PAGA actions from being divided into individual claims, and state courts have determined that — as a result — arbitration couldn’t be compelled in Moriana’s case. California precedent also essentially invalidates, or requires courts to treat as invalid, the waiver to bring a representative action (on behalf of other employees) — meaning that the waiver that Moriana signed in her employment agreement wasn’t valid, and her representative claim against Viking could continue.

But the Viking employment agreement that Moriana had signed pursuant to the FAA included a “severability” clause, meaning that if any part of the waiver was still valid, that waiver could be upheld, essentially requiring arbitration of Moriana’s individual PAGA claim.

Moriana sued Viking anyway. Her lawsuit under PAGA would have allowed her to recover civil damages on her own behalf and on behalf of other employees, as well as on behalf of the state itself. Viking, citing the arbitration clause, moved to dismiss.

Moriana prevailed at trial, arguing that the arbitration clause violated public policy. A state appellate court upheld Moriana’s lower court victory, ruling that because her claim was brought in a representative capacity on behalf of the state, her individual arbitration agreement does not apply.

The Supreme Court on Wednesday reversed.

In a four-part majority opinion joined by five justices spanning the ideological spectrum — conservatives Samuel Alito and Neil Gorsuch, along with liberals Stephen Breyer, Sonia Sotomayor, and Elena Kagan—  the Court held that the Federal Arbitration Act (FAA) preempted the California PAGA law.

Chief Justice John Roberts joined the majority opinion as to the first and third parts, while conservative Justices Brett Kavanaugh and Amy Coney Barrett joined as to the third part only.

Justice Clarence Thomas dissented.

In Wednesday’s opinion, the court found flaws in both parties’ positions on how to interpret the conflict between the laws.

“Viking contends that the Court’s FAA precedents require enforcement of contractual provisions waiving the right to bring PAGA actions because PAGA creates a form of class or collective proceeding,” Alito wrote.  “If this is correct, Iskanian’s prohibition on PAGA waivers presents parties with an impermissible choice: Either arbitrate disputes using a form of class procedures, or do not arbitrate at all. Moriana maintains that any conflict between Iskanian and the FAA is illusory because PAGA creates nothing more than a substantive cause of action. This Court disagrees with both characterizations of the statute.”

The justice was referencing Iskanian v. CLS Transp. Los Angeles, LLC, a 2014 California Supreme Court case.

A rule such as PAGA, which imposes “an expansive rule of joinder in the arbitral context,” would essentially block parties from controlling which claims are subject to arbitration “by permitting parties to superadd new claims to the proceeding, regardless of whether the agreement committed those claims to arbitration.” That would effectively “coerce parties into withholding PAGA claims from arbitration,” the court reasoned.

Supreme Court precedent had determined that the FAA doesn’t preempt “wholesale waivers” of PAGA claims, but it does preempt the PAGA rule that prohibits actions from being divided into individual and non-individual claims, the court said.

This means that Moriana’s individual claims were subject to arbitration, the court determined, and that Moriana’s lawsuit as to those claims should have been dismissed at the trial level.

“PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding,” the court wrote. “And under PAGA’s standing requirement, a plaintiff has standing to maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. As a result, Moriana would lack statutory standing to maintain her non-individual claims in court, and the correct course was to dismiss her remaining claims.”

Justice Sotomayor’s concurring opinion enthusiastically endorsed the majority and noted that California could change the applicable state law if it so desired.

“As a whole, the Court’s opinion makes clear that California is not powerless to address its sovereign concern that it cannot adequately enforce its Labor Code without assistance from private attorneys general,” Sotomayor wrote, noting that while the FAA doesn’t block Moriana’s “non-individual” claims under PAGA, neither does PAGA provide a “mechanism” that allows Moriana to pursue those claims in court.

“Of course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word,” Sotomayor continued. “Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits. With this understanding, I join the Court’s opinion.”

Justice Barrett also wrote a concurring opinion, which seemed to imply that only the third part of the majority opinion was at all relevant to the case.

Justice Kavanaugh joined in Barrett’s opinion, as did Justice Roberts, although the latter did not join as to the footnote.

Barrett wrote:

I join Part III of the Court’s opinion. I agree that reversal is required under our precedent because PAGA’s procedure is akin to other aggregation devices that cannot be imposed on a party to an arbitration agreement. I would say nothing more than that. The discussion in Parts II and IV of the Court’s opinion is unnecessary to the result, and much of it addresses disputed state law questions as well as arguments not pressed or passed upon in this case.*

*The same is true of Part I.

In a brief dissent, Justice Thomas said that the federal rule simply does not apply in this case.

“I continue to adhere to the view that the Federal Arbitration Act (FAA) does not apply to proceedings in state courts,” he wrote, citing examples of Supreme Court cases in which he had apparently previously dissented on those grounds. “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. On that basis, I would affirm the judgment of the California Court of Appeal.”

[Image via Fred Schilling, Collection of the Supreme Court of the United States.]

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