United States: As Supreme Court Hears Argument In Viking River Cruises, PAGA's Most Consequential Case Faces An Uncertain Future

Today, the U.S. Supreme Court will hear oral argument in Viking River Cruises, Inc. v. Moriana, Case No. 20-1573. Wage and hour practitioners, particularly in California, have watched the case with keen interest because it challenges perhaps the most significant Private Attorneys General Act (PAGA) case ever decided: Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014). In that June 2014 ruling, the California Supreme Court established a rule that, under California law, "an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy" and therefore unenforceable. Id. at 360. Just as significantly, the court held that "the [Federal Arbitration Act] does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract." Id. The petitioner in Viking River Cruises asks the U.S. Supreme Court to abrogate that second holding. (To read more about the Viking River Cruises case, click here. To read about how trial courts are reacting to the uncertainty created by the pending Supreme Court case, click here.)

The facts of Iskanian are straightforward. The plaintiff, who worked for CLS as a driver, signed an arbitration agreement requiring him to submit "any and all claims" arising out of his employment to individual arbitration. Thus, the parties agreed to waive the right to bring any claim on a class or representative basis. The parties agreed that this waiver purported to bar the plaintiff from pursuing his representative PAGA claim. Id. at 360-61.

The California Supreme Court held that the waiver was unenforceable. It explained that PAGA was tailored to address the problem of Labor Code provisions going unenforced, both by providing penalties sufficient to deter violations and by deputizing aggrieved employees as private attorneys general to supplement the state's enforcement efforts. Id. at 379. Thus, the right to bring an enforcement action under PAGA serves a public purpose, and any contract purporting to waive that right contravened state law providing that "a law established for a public reason cannot be contravened by a private agreement." Id. at 382-83 (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 100 (2000)).

The court went on to analyze whether this rule was preempted by the Federal Arbitration Act (FAA). As the U.S. Supreme Court had made clear through several cases over the prior decade, a state law rule is preempted if it stands as an obstacle to the FAA, which requires that arbitration agreements be placed on equal footing with other agreements and enforced according to their terms. Examining the FAA's text and legislative history, the court concluded that "a PAGA claim lies outside the FAA's coverage," because the FAA extends only to private disputes. Id. at 384-86. In contrast, the court determined that a PAGA claim "is not a dispute between an employer and an employee arising out of their contractual relationship," but rather "a dispute between an employer and the state, which alleges directly or through its agents . . . that the employer has violated the Labor Code." Id. at 386-87 (original emphasis).

Federal courts are not bound by the California Supreme Court's interpretation of federal law, and, initially, Iskanian's interpretation of the FAA received a frosty reception in federal court. In subsequent months, district courts overwhelmingly concluded that the Iskanian rule was preempted by the FAA, and many observers expected the U.S. Supreme Court would agree. However, the Court declined a petition for certiorari in January 2015, and to the surprise of many, the 9th Circuit issued a decision in September 2015 likewise holding that the FAA did not preempt the Iskanian rule. Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 431 (9th Cir. 2015). As a practical matter, the Sakkab decision closed off any path to challenging the Iskanian rule except in the U.S. Supreme Court. And although many employers continued to litigate motions to compel arbitration in an attempt to obtain Supreme Court review, the Court showed no interest in the issue before granting certiorari in Viking River Cruises in December 2021.

The effect of the Iskanian decision is difficult to overstate. In the early to mid-2010s, in response to U.S. Supreme Court decisions approving class action waivers, employers were increasingly adopting mandatory arbitration programs to attempt to foreclose class actions. But at the same time, Iskanian established an avenue for plaintiffs to bring a representative action without regard to any mandatory arbitration programs. As a result, the amount of PAGA filings nearly tripled between 2013 and 2015 as PAGA quickly became the vehicle of choice for California plaintiffs' lawyers seeking to litigate wage and hour claims at scale. In the years since, the volume of PAGA litigation has only continued to grow.

In sum, it is no exaggeration to say that Iskanian is responsible for determining the primary way that California labor laws have been enforced for nearly a decade. Although the California Legislature continues to have authority to supplement labor enforcement efforts, Viking River Cruises will decide how the private attorney general model can circumvent mandatory arbitration provisions.

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