Employment Arbitration Agreements Are “Under Water” Until The Supreme Court’s Decision Is Released in River Viking Cruises v. Moriana

McManis Faulkner
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McManis Faulkner

California employment litigators currently feel as if the world is at a standstill. Each and every attorney, whether counsel for defense or plaintiff, is holding their breath. For the last couple of years, plaintiff’s attorneys have had employers over a barrel in litigation, but the Supreme Court of the United States may even the playing field soon. Attorneys and business owners anxiously await the issuance of a decision in the River Viking Cruises v. Moriana case which could be published this month. The relevant issue in the River Viking Cruises case is whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under the Private Attorney General Act (“PAGA’).

Employers routinely use arbitration agreements to cover potential claims with their employees in order to avoid the steep costs, delays, and uncertainties of jury trials. Courts in California, however, have refused to order claims brought under PAGA to arbitration. Furthermore, in the last three years, the courts have refused to stay PAGA claims while an employee’s individual claims are pending in arbitration. This has left a gaping hole in jurisprudence, which historically has avoided duplicity of actions. The law has always favored providing a litigant his or her “day in court” (or in these cases, arbitration), but a litigant should only get “their day” once. Under recent jurisprudence, employees are getting the opportunity for two bites at the apple; one for their individual claims and one for PAGA claims.

Plaintiff’s counsel has been able to sidestep class action waivers in arbitration agreements by simply asserting a PAGA claim, which is a representative action, not a class action. However, the procedural safeguards and requirements for a class action do not apply in a PAGA action. For example, there is no requirement to certify the class for a PAGA claim. Some courts have ruled that courts cannot strike a PAGA claim based on manageability, but can do so in a class action. (Estrada v. Royalty Carpet Mills, Inc. (2022) 76 Cal.App.5th 685, 709-710.) Some courts have ruled there is no right to a jury trial in a PAGA action, unlike a class action. (Laface v. Ralphs Grocery Company (2022) 75 Cal.App.5th 388, 401.) This has left attorneys and employers wondering what other rights and safeguards will be eliminated?

A PAGA action is an action for civil penalties for violations of the labor code. A PAGA representative action is a type of qui tam action. The government entity on whose behalf the plaintiff files suit is always the real party in interest. However, a judgment or settlement in a PAGA action could have preclusive effect on issues in other cases. This has left a gaping hole in the procedural framework of our courts, which is evident in a procedural tactic many plaintiff’s attorneys are using right now. Plaintiff’s attorneys are filing PAGA cases first, with the intent to file individual and/or class claims in a later lawsuit seeking unpaid wages, interest, punitive damages, and statutory penalties. Plaintiff’s attorneys reap the lucrative benefit of attorney’s fees in two separate cases, based on the same facts, parties, and alleged violations of law. The courts have yet to face the challenging question of whether they must apply the doctrine of issue preclusion or claim preclusion (also known as res judicata or collateral estoppel) to bar a plaintiff’s duplicative lawsuits.

If the Supreme Court does not curtail California courts and require arbitration agreements to be enforced in PAGA actions, it will erode employment law jurisprudence by giving plaintiffs more than one bite at the apple and opening the door to issue or claim preclusion. Courts in California have struggled with how to balance longstanding jurisprudence while permitting private individuals to pursue their claims under the PAGA. A decision in River Viking Cruises will hopefully give the courts and litigants the clarity and the procedural framework they need to address and resolve PAGA claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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