California’s Private Attorney General Act (“PAGA”) allows employees to file claims against their employers to recover civil penalties on behalf of themselves, other employees, and the State of California for various Labor Code violations. Claims under PAGA may be individual claims (those suffered by the employee making the claim) or “representative” claims (those suffered by employees other than the employee making the claim), but an employee generally needs to have an individual claim in order to have standing to pursue representative claims.

Many employment contracts contain class waivers, which prohibit an employee from filing a class action lawsuit on behalf of others. Many employment contracts also contain arbitration clauses, which require employees to arbitrate claims against their employer rather than filing a lawsuit. In PAGA cases, California courts have held that PAGA prohibits employees from waiving the right to assert representative claims, regardless of what the applicable employment contract states. This has meant that even an employment agreement with an airtight arbitration provision and class action waiver would not require an employee to arbitrate PAGA claims, providing many employees with powerful leverage to force employers into court and to assert a host of claims on behalf of others which the employee never had as an individual- all but ignoring the contractual agreement between the parties and the parties’ expectations about how issues between them would be resolved.

A U.S. Supreme Court ruling has changed this arbitration v. PAGA landscape significantly. In Viking River Cruises, Inc. v. Moriana, an employee filed a lawsuit against her employer and brought individual and representative claims under PAGA. Her employment contract contained a class waiver which prohibited representative claims as well as an arbitration clause. Her employer argued that she was required to arbitrate her claims and was prohibited from bringing representative claims on behalf of her coworkers in that arbitration.

The California courts ruled on behalf of the employee and held that the arbitration clause and waiver were invalid because PAGA prohibited such waivers. However, the case was appealed to the United States Supreme Court which held that the Federal Arbitration Act (“FAA”) preempted the PAGA prohibition on such waivers. In other words, the Supreme Court held that the FAA superseded PAGA, meaning that the employee was required to arbitrate her individual claims. Because she was required to arbitrate her individual claims, she no longer had standing to bring representative PAGA claims in court, and they could not be arbitrated under the arbitration provision in question.

The Supreme Court’s ruling means that if an employee’s contract contains an appropriate arbitration provision relating to individual PAGA claims which contains valid class and other representative action waivers, then that employee can be forced to bring individual claims against the employer in arbitration and is prohibited from bringing a representative action under PAGA in either court or arbitration. While the ruling may very well elicit a further response from the California legislature and the courts, this is a very favorable ruling for California employers. Employment law attorneys have used PAGA claims to substantially raise the risk, scope, and cost of employment-related lawsuits for years even where employers have strong arbitration provisions in their employment contracts which require employees to waive class action and representative claims.  For the time being, this tactical advantage can be wiped out with a properly worded arbitration provision. Employers should consider revising their employment agreement arbitration clauses to provide protection from potential PAGA representative claims.