2022 SCOTUS Ruling Impacts Arbitration Agreement and PAGA Claims


On June 15, 2022, the Supreme Court of the United States handed down its anticipated decision in Viking River Cruises Inc. v. Moriana.  At the heart of the case was whether a California employee can bring a claim against the employer under the California Private Attorney General Act (PAGA) if the employee is bound by an arbitration agreement.  The ruling has implications that employers should be aware of to manage claims involving an arbitration agreement and PAGA.

The Future of the Arbitration Agreement and PAGA Claims

Viking River Cruises undoubtedly changed the landscape in California for both employers and employees who have arbitration agreements in place.  However, the reasoning in the case means that the PAGA exemption and arbitration requirements will likely continue to be debated.

Understanding the gist of the Viking River Cruises ruling and previous case law on the subject combined with the counsel of a knowledgeable California employment law attorney will help employers understand their rights and responsibilities, craft policies and defend against PAGA claims in California as they move forward.

A Case Involving an Arbitration Agreement and PAGA under Iskanian

PAGA allows California employees to sue their employers and seek civil penalties on behalf of themselves as well as their fellow workers and the state.  In 2014, the Supreme Court of California held in Iskanian v. CLS Transportation that PAGA claims were not subject to mandatory arbitration on an individual basis.  The court reasoned that the real party of interest was the State of California rather than the individuals subject to the arbitration agreements. 

Iskanian created an effective exemption from otherwise enforceable arbitration agreements.  The court determined that arbitration agreements that require employees to waive the rights afforded by PAGA conflict with public policy and do not run afoul of the Federal Arbitration Act (FAA).  Iskanian has served as precedent in cases involving PAGA exemption and arbitration for almost a decade.

Arbitration and PAGA Claims before and after Viking River Cruises

Before Viking River Cruises, plaintiffs could pursue claims under PAGA in court despite the existence of a valid arbitration agreement.  That means that employees could seek civil penalties that would normally be assessed by the California Labor and Workforce Development Agency.

PAGA after the Viking River Cruise opinion is much more limited because the recent ruling effectively eliminated the de facto PAGA exemption.  Employees are now required to arbitrate their individual PAGA claims.  The decision is a victory for California employers who will now be able to seek dismissal of PAGA claims when the plaintiff is a party to an arbitration agreement. 

How Viking River Cruises Impacts the Arbitration Agreement and PAGA Claims

The ruling in Viking River Cruises means that employees can no longer litigate individual claims if they have a valid arbitration agreement in place.  The Court did not alter the Iskanian holding that arbitration agreements cannot require employees to waive all PAGA claims, but it did hold that the PAGA exemption established in Iskanian was preempted by the FAA. 

The Court held in Viking River Cruises that there is no mechanism in PAGA that provides standing for a plaintiff to pursue representative claims if they are bound by an arbitration agreement.  In other words, an employee has no standing to pursue a PAGA claim if the employee is required to arbitrate individual claims.

With this ruling, the Court left the door open for the state legislature to create a mechanism to exempt an employee from the arbitration requirement under certain circumstances in the future.  Many legal experts predict that Viking River Cruises will not be the final word on the PAGA exemption and arbitration. 

Employer To-Do List Following Viking River Cruises

The recent SCOTUS decision is undoubtedly a win for California businesses.  To take advantage of the ruling and prepare for arbitrating PAGA claims after Viking River Cruise, following are some recommendations for employers:

  • Employers should review employee arbitration agreements for total waivers of representative actions without severability clauses and revise as necessary.  This will close any loopholes and ensure that PAGA claims will be subject to arbitration.
  • Employers without arbitration agreements should consider whether implementing arbitration agreements might help manage the risk of PAGA claims.
  • Employers must prepare for arbitration of individual PAGA claims.  Before the ruling, PAGA claims were not going to arbitration, so employers now must be ready to respond to PAGA claims through arbitration rather than through litigation.
  • Employers should keep an eye out for forthcoming court rulings or legislation that could upend the opinion or otherwise impact PAGA exemption and arbitration matters.

A California Attorney for Arbitration Agreement and PAGA Claims

The Law Offices of Susan A. Rodriguez, APC is your trusted resource for employment arbitration agreement and PAGA matters.  For a consultation with an experienced California employer defense attorney on the impacts of Viking River Cruises or other employment law matters on your business, call (213) 943-1323 or complete the firm’s online contact form.

Posted by Susan A. Rodriguez, Esq.

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