Duane Morris Class Action Review - 2023 - Report - Page 18
The plaintiff filed an action under California’s Private Attorneys General Act of 2004
(PAGA) alleging that her former employer violated the California Labor Code. The
PAGA purports to authorize any “aggrieved employee” to initiate an action “on behalf of
himself or herself and other current or former employees” to obtain civil penalties
recoverable by the State. Id. at 1914. The PAGA contains what the Supreme Court
recognized as “effectively a rule of claim joinder” in that it allows a party to unite multiple
claims against an opposing party in a single action. Id. at 1915.
The plaintiff’s employment contract with Viking contained a mandatory arbitration
agreement and a class action waiver that prohibited any party from bringing a class,
collective, or representative action under the PAGA. Viking moved to compel arbitration
of the plaintiff’s individual PAGA claim and to dismiss her other PAGA claims. The trial
court denied the motion, reasoning that, according to California precedent, courts
cannot split claims into arbitrable “individual” claims and non-arbitrable “representative”
claims. After the California Supreme Court affirmed, the U.S. Supreme Court granted
review. Id. at 1917.
The Supreme Court ruled that the FAA preempts California precedent insofar as such
precedent precludes division of PAGA actions into individual and non-individual claims
through an agreement to arbitrate. The Supreme Court reasoned that, according to its
precedents, the imposition of class procedures leaves unwilling parties with an
unacceptable choice between being compelled to arbitrate using such procedures and
foregoing arbitration altogether. While a rule that prohibits a court from enforcing a
plaintiff’s waiver of standing to assert claims on behalf of absent principals does not
conflict with the FAA, a rule prohibiting a court from enforcing a plaintiff’s waiver of the
PAGA’s built-in claim joinder mechanism does conflict with the FAA because it unduly
circumscribes the freedom of the parties to determine “the issues subject to arbitration”
and “the rules by which they will arbitrate.” Id. at 1923.
The Supreme Court concluded that state law cannot condition the enforceability of an
agreement to arbitrate on the availability of a procedural mechanism that permits an
expansive rule of joinder. Id. at 1924. Because, as interpreted by California precedent,
the PAGA’s joinder rule would function in such a way, it effectively would coerce parties
into opting for a judicial forum rather than realizing the benefits of private dispute
resolution. Thus, while the FAA does not preempt a wholesale waiver of PAGA claims, it
does preempt a rule that prevents the PAGA claims from being divided into their
individual and non-individual claims. Id. at 1925. The Supreme Court also noted that,
because the PAGA does not contain a mechanism that enables a court to adjudicate
non-individual claims after compelling individual claims to a separate proceeding, the
lower court should have granted Viking’s motion to compel arbitration and dismissed the
remaining claims. Id.
Trend # 3 – The Arbitration Defense Suffered Setbacks In 2022
Of all defenses, a defendant’s ability to enforce an arbitration agreement containing a
class or collective action waiver may have had the single greatest impact in terms of
shifting the pendulum of class action litigation. With its decision in Epic Systems
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Duane Morris Class Action Review – 2023