PAGA representative standing after Viking River Cruises

Introduction. In Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (June, 15, 2022), the U.S. Supreme Court ruled that the Federal Arbitration Act preempted California's Private Attorneys General Act of 2004 and compelled arbitration of Respondent's employment claim. By ruling in favor of Viking, the Court held that employers may enforce arbitration agreements in California to the extent they require an employee to arbitrate individual claims under PAGA.

The Court concluded that once Moriana's individual claim was compelled to arbitration, she no longer had standing to bring representative claims under PAGA on behalf of other aggrieved employees and the remainder of her lawsuit was dismissed. Does this part of the holding - that PAGA provides no mechanism to enable the court to adjudicate the representative claims once the individual claims are compelled to arbitration - reflect a correct interpretation of California law? Are California courts bound to follow this precedent?

Facts. Angie Moriana filed a PAGA action against her former employer Viking River Cruises, alleging wage and hour violations on behalf of herself and others. Her employment contract with Viking included a mandatory arbitration agreement that contained both a "Class Action Waiver" - precluding any class, collective, or representative action under PAGA - and a severability clause stipulating that if the waiver was found invalid, the dispute would be litigated in court. Any "portion" of the waiver that remained valid would be arbitrated. Viking moved to compel arbitration of Moriana's individual claim and to dismiss her other PAGA claims. Applying the rule in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), that precluded division of PAGA claims into "individual" and "representative" claims, the trial court denied the motion ruling that the categorial waivers of PAGA standing are contrary to public policy, and that PAGA claims cannot be split into arbitrable "individual" claims and non-arbitrable "representative" claims. The Second District Court of Appeal affirmed and the California Supreme Court denied Viking's petition for review. The U. S. Supreme Court granted certiorari.

The Holding. Justice Samuel Alito delivered the 8-1 opinion of the Court. Justice Clarence Thomas dissented on the basis that the FAA does not apply in state court proceedings.

The primary holding is premised upon the "first principle" of FAA jurisprudence - that arbitration must be consensual in nature. Iskanian's rule precluding division of individual and non-individual claims forces employers to arbitrate representative claims to which they did not agree. Therefore, the FAA preempted that portion of Iskanian, thereby allowing Viking to compel Moriana's individual claim to arbitration. However, Iskanian's prohibition on wholesale waivers of PAGA claims is not preempted by the FAA. Nothing in the FAA dictates what states may promulgate regarding their agency law and "who can assert claims on behalf of whom (emphasis in original)."

The Court then addressed Moriana's "non-individual claims," and noted those claims cannot be dismissed simply because they are "representative," since Iskanian's rule remains valid to that extent. Any waiver of the representative claims is contrary to public policy and invalid under California law.

Standing To Bring Non-Individual PAGA Claims. Finally, citing Kim v. Reins Int'l California, Inc., 9 Cal. 5th 73 (2020), the Court concluded that PAGA provided no mechanism for a court to adjudicate non-individual PAGA claims once an individual claim had been compelled to a separate arbitration proceeding. Thus, under PAGA's standing requirement, Moriana had standing to maintain the non-individual PAGA claims only during the pendency of her individual claim. Once that claim was compelled to arbitration, she lacked statutory standing to prosecute the non-individual claims in court.

The Court's citation to Kim is curious. Kim held that settlement of individual claims did not divest an "aggrieved employee" of standing to proceed with the non-individual PAGA claims. In fact, Kim made clear that the plain language of § 2699(c) has only two requirements for PAGA standing. The plaintiff need only be an "aggrieved employee," defined as someone "who was employed by the alleged violator," and "against whom one or more of the alleged violations was committed." The fact that Kim settled his individual claim did not divest him of standing to bring the representative claims. He remained an "aggrieved employee." The Legislature defined PAGA standing in terms of violations and not injury. "The remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself (emphasis in original)." A plaintiff is not required to claim any economic injury for the alleged violation. Under § 2699, subdivision (g) (1), an aggrieved employee may pursue or recover other remedies available under state or federal law, either "separately or concurrently" with a PAGA action. Kim concluded "[t]his provision expressly authorizes PAGA suits brought 'separately' from individual claims of relief." Indeed, Kim notes that many PAGA cases consist of a single representative cause of action seeking penalties, and that standing for these "PAGA-only cases" cannot be dependent on the maintenance of an individual claim because no such claim is brought. In short, Kim simply does not support the Viking River Cruises' conclusion that PAGA standing requires an aggrieved employee to maintain an individual claim in order to bring representative claims.

Binding Precedent or Dicta? Is the portion of the Viking River Cruises opinion regarding statutory standing - that a PAGA plaintiff loses standing to bring the non-individual claims when her individual claim is compelled to arbitration - binding precedent or dictum? Dictum is that portion of a judicial opinion that is not necessary for the decision of the case and not binding on lower courts. Here, the main holding was that the FAA preempted the Iskanian rule and allowed Viking to compel arbitration of Moriana' individual claims. In her concurring opinion, Justice Amy Coney Barrett noted Part IV of the opinion (the standing section) "is unnecessary to the result, and much of it addresses disputed state-law questions as well as arguments not pressed or passed upon in this case." In her concurring opinion, Justice Sonia Sotomayor observed, "if this Court's understanding of state law is wrong, California courts, in an appropriate case, will have the last word."

Both concurring opinions support the argument that Part IV of the opinion is dictum. Courts should be guided by dictum only to the extent it is analytically persuasive, relevant, and compelling. 16 Cal. Jur. 3d, Courts § 299 (2022). The fact that Kim does not support the proposition for which it was cited potentially provides lower courts a basis to decline to follow Part IV of the opinion.

The contrary argument is that Part IV of the opinion was central to the case's outcome - it resulted in dismissal of Moriana's case - and, therefore, could not be dictum. Furthermore, even if unnecessary to the outcome, where dictum is contained in a pronouncement from the Supreme Court, it is entitled to persuasive influence. 16 Cal. Jur. 3d, Courts § 299 (2022).

Ameliorative Legislation. Justice Sotomayor stated the obvious, "the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits." Such remedial legislation would be fairly straightforward by promulgating the holding in Kim to make statutory standing for non-individual claims explicit, even if a PAGA plaintiff settles or is compelled to arbitrate individual claims. Such legislation would eliminate the uncertainty this decision engenders in the employment arena.

Conclusion. The Viking River Cruises holding will most certainly generate a flurry of defense motions in active representative cases with similar arbitration agreements, those that contain representative waivers and severability clauses. However, the opinion may not be the last word. Sacramento could very well legislate around the decision. In the meantime, employment counsel representing employers may wish to review their clients' arbitration agreements to comport with this recent decision.