Three Tips for Updating, Enforcing Arbitration Agreements to Minimize PAGA Exposure in California Following Supreme Court’s Viking River Decision

By: Robert I. Lockwood

For almost two decades, the California Private Attorneys General Act of 2004 (PAGA) has vexed employers and resulted in significant increased exposure to wage and hour claims. Though there are no class certification requirements, PAGA permits employees to seek additional penalties on behalf of themselves and all other “similarly aggrieved” employees that previously could only be sought by the state. Since the claims of multiple employees can be combined – and the law provides for prevailing party attorneys’ fees – settlements and judgments have been substantial

To limit exposure, many employers have implemented arbitration agreements that include class and PAGA representative action waivers. Until now, many of these waivers appeared unenforceable. However, in Viking River Cruises, Inc. v. Moriana, the U.S. Supreme Court recently breathed new life into this strategy and provided a road map for how these waivers could be updated and used to achieve some relief. The Court’s ruling means that given an artfully drafted agreement, employees can agree to waive both class action and representative action PAGA claims against their employers, and to have their individual wage and hour and individual PAGA claims adjudicated in private arbitration. Employers can then seek to have any remaining representative PAGA claims brought on behalf of other employees dismissed for lack of standing. 

The California legislature could make changes to PAGA’s standing requirements and subsequent court decisions could also alter the legal landscape. The viability of mandatory arbitration agreements entered into after January 1, 2020 in the employment context in California is also currently being decided by the Ninth Circuit. However, for now, employers should consider updating existing arbitration agreements or implementing new ones and enforcing these agreements in litigation. Here are three tips when doing so:

  1. Include an explicit class action and representative action waiver that is consistent with Viking River. Despite their power to dramatically reduce exposure, many arbitration agreements unfortunately do not include waivers of class and representative action claims.  Others may, but could be further updated to eliminate wholesale waivers of representative action claims and provide that only individual representative action PAGA claims may be brought in arbitration. Make sure all waiver language addresses both class action as well as individual and non-individual representative actions under PAGA and is clear and consistent with Viking River.
     
  2. Do not forget the severability clause. The result in Viking River may have been different had the agreement at issue not included a severability clause that essentially provided that if the waiver provision was held to be invalid in some respect, any remaining valid portion of the waiver must still be enforced in arbitration. While a severability clause may not be as necessary if the language of a representative action waiver more clearly targets non-individual PAGA claims or claim joinder, employers should consider similar provisions out of an abundance of caution given the rapidly evolving legal landscape.  
     
  3. Timely move to enforce. Even the best drafted arbitration agreements can be unavailing if employers fail to timely and properly move to enforce them. Since most PAGA cases are litigated in state courts, California law regarding waiver will apply in most cases. Under this standard, courts generally consider such factors as: (a) whether the party’s actions are inconsistent with the right to arbitrate; (b) whether the litigation machinery has been substantially invoked before the party notified the opposing party of an intent to arbitrate; (c) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (d) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (e) whether important intervening steps had taken place; and (f) whether the delay affected, misled, or prejudiced the opposing party. Inquiries may vary depending on the specific facts of each case. For cases filed before the Viking River decision, employers may argue that they have not waived the right to compel no matter how far along the litigation is because any petition filed before this decision would have been futile. For cases filed after Viking River, employers should be mindful of these factors and seek enforcement earlier in the litigation.

For more information on this decision, read our alert from June 28 titled, “U.S. Supreme Court Permits Individual Arbitration of California PAGA Claims.” For more information on drafting arbitration agreements in California, contact the author of this alert or visit our Labor & Employment Practice page to find an attorney in your area. You can also subscribe to this blog to receive email alerts when new posts go up.

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