Supreme Court Limits California PAGA Law Where Arbitration Agreements Exist

Author: David B. Weisenfeld

June 15, 2022

The California Private Attorneys General Act (PAGA) is preempted by the Federal Arbitration Act (FAA), the US Supreme Court has ruled. In Viking River Cruises, Inc. v. Moriana, the justices continued their general trend of finding that the FAA entitles employers to compel arbitration.

California's PAGA law - the only statewide law of its kind - authorizes any "aggrieved employee" to sue a former employer on behalf of themselves and other current or former employees to obtain penalties that previously only the state could recover. Since three-fourths of any money recovered is paid to the state, the law was viewed as creating something akin to whistleblower actions.

The case involved a woman who sued her former employer under PAGA, claiming it failed to provide her with final wages within 72 hours as required. She also alleged minimum wage, overtime, and meal and rest break violations. The plaintiff had signed an arbitration agreement with a class action waiver as a condition of employment. Nonetheless, California courts had let the lawsuit go forward under PAGA.

But the Supreme Court said "not so fast" and reversed. Writing for the Court, Justice Samuel Alito noted that the FAA's mandate is to enforce arbitration agreements. He explained that PAGA suits have "none of the procedural characteristics of class actions" and that parties to an arbitration agreement cannot be coerced into foregoing rights they enjoy under the FAA.

"Employers all over California are rejoicing today," said Los Angeles employment attorney Anthony Oncidi, co-chair of Proskauer's labor and employment law department.

"Employers should run, not walk, to take advantage of this significant new development by immediately reviewing and, if necessary, amending their arbitration agreements to encompass PAGA claims," added Oncidi. "And as for those employers who, for whatever reason, have not yet availed themselves of an updated arbitration program, this is just the most recent reason to consider doing so."