PAGA returns to the US Supreme Court

For decades, California's Legislature and courts have devised rules that frustrate the enforcement of arbitration agreements between workers and hirers. Time and again, the U.S. Supreme Court has applied the Federal Arbitration Act (FAA) to rebuff these serial efforts to interfere with arbitration contracts.

Undeterred, California courts continue to resist the U.S. Supreme Court's federal arbitration precedent. Their most recent efforts involve California's Private Attorneys General Act (PAGA).

PAGA authorizes an "aggrieved employee" to pursue civil penalties "on behalf of himself or herself and other current or former employees" for statutory violations of wage-and-hour laws. Cal. Lab. Code § 2699(a). PAGA allows named plaintiffs to lump together in one action alleged code violations they suffered with code violations purportedly sustained by co-workers.

For nearly a decade, PAGA was an FAA-free zone; California courts took the position that the FAA was inapplicable to PAGA claims. In Viking River Cruises v. Moriana, 596 U.S. 639 (2022), the U.S. Supreme Court sought to end that regime.

Viking River partially overruled California arbitration precedent for PAGA claims. First, Viking River held that the FAA applies to PAGA claims. Second, applying the FAA, Viking River held that, where an arbitration agreement encompasses PAGA claims, individual PAGA claims (based on violations personally suffered by the named plaintiff) must be compelled to arbitration while the non-individual PAGA claims (based on violations sustained by other co-workers) must be dismissed.

Less than two years later, however, Viking River's dismissal rule is a dead letter in California courts. In Adolph v. Uber Techs., Inc., 532 P.3d 682 (Cal. 2023), the California Supreme Court has decided that non-individual PAGA claims need not be dismissed where the individual PAGA claims are sent to arbitration.

But California courts do not have the last word in construing the FAA. Their off-hand rejection of Viking River's dismissal rule has now reached the U.S. Supreme Court, which will soon decide whether to step in and require lower courts to apply Viking River and dismiss non-individual PAGA claims in accordance with the FAA.

The road to Viking River

In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the U.S. Supreme Court held that California courts must enforce class-action waivers in arbitration contracts, with the FAA preempting California's contrary rule. Subsequently, plaintiffs in wage-and-hour cases began increasingly to file PAGA claims in the hopes of circumventing such waivers.

In Iskanian v. CLS Transportation Los Angeles, LLC, 327 P.3d 129 (Cal. 2014), the California Supreme Court held that state public policy prohibited the enforcement of an arbitration agreement's PAGA representative-action waiver. Iskanian determined that the FAA did not preempt this prohibition because the FAA applies solely to the arbitration of claims belonging to private parties, whereas PAGA claims are qui tam actions in which individual workers pursue public (not private) claims for relief.

Viking River applies the FAA to PAGA claims

After Iskanian, the number of PAGA representative actions mushroomed. Faced with this flood of PAGA litigation, businesses continued to argue that the FAA preempted Iskanian. The U.S. Supreme Court granted certiorari to decide this issue in Viking River.

Viking River held that the FAA applies to PAGA claims, rejecting Iskanian's contrary view. Viking River explained that "regardless of whether a PAGA action is in some sense also a dispute between an employer and the State, nothing in the FAA categorically exempts claims belonging to sovereigns from the scope" of the FAA. 596 U.S. at 652 n.4.

Viking River then focused on the representative-action waiver provision included in the employee's arbitration agreement. Viking River said the FAA does not require California courts to enforce contractual provisions that waive a plaintiff's standing to assert PAGA claims on behalf of the State. But Viking River also held the FAA does preempt Iskanian's indivisibility rule that mandates a plaintiff join PAGA claims predicated on the alleged violations of wage-and-hour laws he or she personally suffers (i.e., individual PAGA claims) with claims based on violations allegedly suffered by other workers (i.e., non-individual PAGA claims). As Viking River explained, by prohibiting the "division of PAGA actions into individual and non-individual claims through an agreement to arbitrate," Iskanian's indivisibility rule "invalidates agreements to arbitrate only 'individual PAGA claims for Labor Code violations that an employee suffered.'" 596 U.S. at 659, 662 (citation omitted).

Applying these principles, Viking River held that courts must enforce agreements to arbitrate individual PAGA claims. Id. at 659, 662. Viking River further held that, once those individual claims are "pared away from a PAGA action" to proceed in arbitration, a plaintiff cannot "maintain [the] non-individual claims in court, and the correct course is to dismiss [the] remaining claims." Id. at 663.

Justice Sotomayor concurred, joining the majority opinion in full while insisting that Viking River's dismissal rule for non-individual PAGA claims was an application of California law. Id. at 663-64 (Sotomayor, J., concurring). Justice Sotomayor maintained that, if the U.S. Supreme Court's "understanding of state law is wrong, California courts, in an appropriate case, will have the last word." Id. at 664.

California courts rebuff Viking River

Embracing Justice Sotomayor's concurrence, California Courts of Appeal quickly declined to apply Viking River's dismissal rule. They insisted non-individual PAGA claims could proceed in court even where individual PAGA claims are sent to arbitration. See, e.g., Seifu v. Lyft, Inc., 306 Cal.Rptr.3d 641 (Ct. App. 2023); Gregg v. Uber Techs., Inc., 306 Cal.Rptr.3d 332 (Ct. App. 2023). According to these courts, Viking River's dismissal rule was based on an erroneous interpretation of state law, which they could disregard.

The California Supreme Court adopted this approach in Adolph v. Uber Techs., Inc., 532 P.3d 682 (Cal. 2023). Whereas Viking River held that the FAA requires a PAGA action to be "divided" into two separate claims--individual and non-individual claims--that are severed, 562 U.S. at 662, Adolph declined to sever the individual claim from the non-individual claim.

Instead, Adolph tethered the two claims together as "remaining part[s] of the same action," even after the individual claim is pared away for arbitration. 532 P.3d at 693. Adolph did so to avoid the necessary consequence of severance--the creation of a non-individual claim disconnected from its plaintiff. The absence of that connection was a reason for dismissal under Viking River.

Subsequently, the Ninth Circuit rejected a defendant's argument that Adolph was inconsistent with Viking River because Adolph's rule failed to completely sever individual PAGA claims from non-individual PAGA claims, thereby impermissibly threatening to allow plaintiffs to relitigate in court PAGA issues committed to arbitration by the parties' contract. See Johnson v. Lowe's Home Centers, LLC, ___ F.4th ___, 2024 WL 542830 (9th Cir. Feb. 12, 2024).

Viking River Redux?

Two defendants recently filed cert petitions challenging the Adolph rule in Uber Technologies, Inc. v. Gregg, No. 23-645, and Lyft, Inc. v. Seifu, No. 23-769.

Uber's cert petition focuses on severance. It contends that the FAA preempts Adolph's refusal to completely sever individual and non-individual PAGA claims and thereby avoid dismissing non-individual PAGA claims. Lyft's cert petition encompasses the same issue but presents the U.S. Supreme Court with additional arguments for why California courts' refusal to abide by Viking River's dismissal rule cannot be squared with the FAA.

For example, Lyft's petition explains that Viking River's dismissal rule is a federal rule of decision implementing the FAA, not a state-law rule, and California courts are bound by this federal rule under the Supremacy Clause of the federal Constitution.

Additionally, Lyft's petition explains that the FAA would preempt Adolph even if Viking River's dismissal rule were grounded in state law. For instance, Lyft's petition explains that allowing non-individual PAGA claims to be litigated in court (instead of being dismissed) violates the FAA by interfering with a company's contractual right to individually arbitrate disputes with workers other than the named plaintiffs. Companies and workers often agree to individually arbitrate their disputes--including disputes over alleged Labor Code violations that could serve as predicates for PAGA claims. The vindication of these arbitration rights is frustrated if non-individual PAGA claims adjudicate these disputes between companies and their other workers in court. Court litigation, and the resulting judgment disposing of a non-individual claim, threaten to resolve core issues that companies and workers have committed to arbitration, in contravention of the FAA.

These may be but the first of many cert petitions to come. The defendant in Johnson may yet file a cert petition challenging the Ninth Circuit's rejection of its FAA preemption challenge to Adolph. Other pending appeals have likewise called on the Ninth Circuit to abide by Viking River's dismissal rule, which may eventually lead to further cert petitions.

These petitions invite the Supreme Court to defend or revisit Viking River's dismissal rule. Whether California courts will honor arbitration contracts governed by the FAA in PAGA cases hangs in the balance.