In Viking River Cruises, Inc. v. Moriana, 213 L. Ed. 2d 179, 142 S. Ct. 1906 (2022), reh’g denied, No. 20-1573, 2022 WL 3580311 (U.S. Aug. 22, 2022), the Supreme Court held that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”), preempts state law rules that prevent division of individual and non-individual claims in an arbitration agreement.
The case arose out of a wage dispute between a company and a former employee. The employee had signed an arbitration agreement which contained a “class action waiver.” California has a unique private attorney general law, the California Labor Code Private Attorneys General Act of 2004 (Cal. Lab. Code § 2698, et seq.) (“PAGA”), which allows any “aggrieved employee” to initiate an action against a former employer “on behalf of himself or herself and other current or former employees.” The California Supreme Court had held that, with respect to PAGA, 1) pre-dispute agreements purporting to waive the right to bring “representative” PAGA claims are invalid as a matter of public policy, and 2) parties are not free to separately arbitrate individual PAGA claims apart from “representative” PAGA claims. Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348, 327 P.3d 129 (2014).
The Supreme Court’s decision abrogated the second holding of Iskanian, holding that the FAA prohibits state law rules that prevent division of individual claims from non-individual claims in arbitration agreements. The Court reasoned that the California rule in Iskanian allowed an aggrieved employee to abrogate an arbitration agreement after the fact, resulting in either no arbitration of PAGA claims or an increase in the scope of an arbitration agreement to include representative claims. Put simply, the Court noted that “[t]he only way for parties to agree to arbitrate one of an employee’s PAGA claims is to also ‘agree’ to arbitrate all other PAGA claims in the same arbitral proceeding.” Viking River Cruises, Inc. 142 S. Ct. at 1924. The FAA preempts such a result, and the Court ordered the individual claim proceed to arbitration. Interestingly, because of the statutory language of PAGA itself, the Court also held that because the employee’s individual claim was sent to arbitration, she could not maintain her representative claim in any forum as a matter of statutory standing. This result occurred because PAGA requires claims to be brought on behalf of both an individual and others. Cal. Lab. Code § 2699(a).
Viking River confirms that parties have the ability to divide individual claims from non-individual claims and arbitrate the individual claims. Going forward, parties that seek to arbitrate disputes should review their agreements to ensure that they allow for the division of individual claims. Parties should also ensure that their arbitration agreements contain broad severability clauses to ensure that courts give their arbitration agreements—including waiver provisions—effect, even if part of the arbitration agreement is found violative of a state’s public policy.
