The United States Supreme Court heard oral arguments in Viking River Cruises, Inc. v. Moriana, No. 20-1573, on March 30, 2022, and this case involves a potential clash between California’s Private Attorneys General Act (PAGA) and arbitration under the Federal Arbitration Act (FAA). Hanging in the balance is whether workers in California will have to pursue their labor code claims one-on-one against their employer, like in a possible David v. Goliath situation, or whether a worker David can seek to recover penalties on behalf of all other coworkers who work for the same Goliath employer. The use of arbitration to avoid class proceedings has produced landmark opinions in the past like AT&T Mobility LLC v. Concepcion (2011), and Epic Systems Corp. v. Lewis (2018). However, the nature of representative PAGA actions appears to be different from the class or collective proceedings at issue in Concepcion and Epic Systems.
Arbitration has never been clearly defined in the Federal Arbitration Act (FAA). At the time of the FAA’s drafting during the 1920s, there was some debate whether the proposed bill should include more details about the nature of arbitration, but such details were left out of the bill to preserve some flexibility with the concept of arbitration. In 2011, a majority of Justices in Concepcion held that a fundamental attribute of arbitration is its bilateral, one-on-one nature; a class proceeding was viewed as inconsistent with individual arbitration under the FAA. Under this view, there appears to be tension between arbitration under the FAA and representative proceedings under PAGA.
The Supreme Court’s eventual decision in Viking River will likely turn on how the Justices conceptualize representative proceedings under PAGA, and based on the questioning during oral argument, the Justices appear to have different views or understandings of PAGA. Some Justices, during the oral arguments, tended to treat PAGA as involving a substantive right to collect penalties, and under this view, the worker may win because arbitration is not supposed to be used in a manner to interfere or undermine the vindication of substantive rights. However, other Justices during oral argument conceptualized PAGA as merely a procedural rule that allows for joinder. Treating PAGA as merely a procedural right would likely favor the employer because ‘agreeing to arbitrate’ has been construed as giving up a certain bundle of procedural rights normally available in court, such as rights to broad discovery or the right to join other parties. Other questions from the Justices tended to view PAGA as an action brought on behalf of the State of California, and if the real party in interest in PAGA actions is the State, arbitration should not be required because the State is not a party to the agreement.
Some of the arguments raised in the Viking River case assumed that PAGA claims can be subject to arbitration. However, there is a court split on this precise issue, with most California state courts finding PAGA claims not arbitrable (because the state has not consented to arbitrate), and with federal courts holding to the contrary and finding that PAGA claims are arbitrable. Compare, e.g., Adolph v. Uber Technologies, Inc., 2022 WL 1073583 (Cal. Ct. App. Apr. 11, 2022), with Valdez v. Terminix Int’l Co. Ltd. P’ship, 681 F. App’x 592 (9th Cir. 2017).
It is also worth considering the following language from the Ninth Circuit’s decision in Valdez v. Terminix Int’l Co. Ltd. P’ship, 681 F. App’x 592, 594 (9th Cir. 2017), and in particular, how the Ninth Circuit treats the California Supreme Court’s landmark decision in Iskanian in a narrow manner:
“Iskanian and Sakkab clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum… Accordingly, an individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration. Iskanian does not require that a PAGA claim be pursued in the judicial forum; it holds only that a complete waiver of the right to bring a PAGA claim is invalid.”
This Ninth Circuit view of PAGA articulated in Valdez is central to several arguments in the pending Viking River case. If PAGA claims can only be heard in court and are non-arbitrable, there is a greater risk that the Supreme Court will hold that the FAA preempts PAGA. The FAA generally preempts state laws prohibiting arbitration. However, if PAGA claims are indeed arbitrable, then it seems that California’s PAGA may avoid FAA preemption since the state law is not disfavoring arbitration.
If an arbitrator is faced with a PAGA claim, how should an arbitrator handle such a situation? Currently, there is conflicting federal and state case law regarding the arbitrability of PAGA claims, but hopefully, the Supreme Court’s eventual decision in Viking River – expected before the Court breaks for the summer, will clarify how PAGA claims should be handled and whether such claims can be arbitrated.
Similar problems and uncertainty may exist with the new amendment to the FAA, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (the “Amendment”). Under this Amendment, a pre-dispute arbitration agreement is not enforceable if a claimant has a sexual assault or sexual harassment claim. Unfortunately, the scope of the Amendment is not clear yet. There are different possible interpretations of how the Amendment may operate if a claimant raises a sexual assault or harassment claim together with other claims, like a wage claim or contract claim or race discrimination claim. It is not clear whether these other claims asserted in the same case are exempt from arbitration under the Amendment, or whether the Amendment should be construed narrowly to exempt only sexual harassment and assault claims from arbitration. How should arbitrators handle claims if there is uncertainty whether such claims can be arbitrated? The courts will have to sort out the precise scope of the new Amendment.
The Viking River case involving PAGA claims, the other arbitration-related cases currently pending before the Supreme Court, the new Amendment, and pending bills to reform arbitration law all reflect a larger debate about the appropriate use of arbitration in society. Attitudes regarding arbitration have definitely shifted over time and are continuing to shift. But no matter how one views this larger question of what type of claims may be appropriate for arbitration, it is critical for the legal framework supporting arbitration to be crystal clear. Uncertainty in arbitration law, such as uncertainty about the arbitrability of PAGA claims or uncertainty how the new Amendment may work, undermines the potential value of arbitration as an efficient, quick, effective way of resolving disputes.
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