Supreme Court Hears Oral Argument in Viking River, California’s PAGA Arbitration Case

On March 30, 2022, the Supreme Court of the United States heard oral argument in a critically important case for California employers, Viking River Cruises, Inc. v. Moriana, Case No. 20-1573. As we previously discussed, the case likely will determine whether employers can utilize a properly drafted arbitration agreement to reduce or stop Private Attorneys General Act (PAGA) suits that continue to plague employers in California. As most businesses know, PAGA suits, which seek recovery on a representative basis for California Labor Code violations, can be devastating to employers. Even technical or harmless violations of the Labor Code can lead to potentially millions of dollars of liability. Until now, California law has prevented the enforcement of representative action waivers in PAGA cases; Viking River Cruises may change all of this.

Reading the tea leaves from an oral argument is always risky; nonetheless, it appears the Supreme Court may be poised to permit employers to enforce representative action waivers contained in arbitration agreements in PAGA cases. Specifically:

• There were no big surprises.

The Court repeatedly has enforced arbitration agreements over the past decade. There was nothing in oral argument suggesting that the Court will not enforce the PAGA waiver contained in the Viking River Cruises arbitration agreement.

• Three justices continue to express hostility toward arbitration.

As expected, justices Kagan, Sotomayor, and Breyer expressed skepticism that the Federal Arbitration Act would preempt a state’s decision to outsource enforcement of its labor laws to individuals. Importantly, these justices generally have been on the losing end of the Supreme Court’s arbitration jurisprudence, which previously has held that parties can use an arbitration agreement to avoid class and collective actions. Justice Kagan in particular expressed concern that a ruling in favor of the employer in this case ultimately would result in entire procedural remedies being lost in other types of cases. However, these are the same arguments that failed to carry the day in prior Supreme Court decisions enforcing arbitration agreements in class action and collective actions cases, such as AT&T Mobility, LLC  v. Concepcion (2011) and Epic Systems Corp. v. Lewis (2018).

• Five justices appear ready to apply the FAA in PAGA cases.

Again, there are no assurances from oral argument, but Chief Justice Roberts and justices Alito and Barrett asked some general questions about the nature of PAGA, suggesting that they are ready to extend Concepcion and Epic Systems to PAGA cases. Justice Alito expressed concerns about the breadth of PAGA, indicating it is so broad that it might raise due process concerns. Justice Kavanaugh asked a single question, suggesting that California’s PAGA system is an outlier and a ruling against PAGA here would not result in the undermining of other states’ laws. Justice Gorsuch (who authored Epic Systems, holding arbitration agreements with class action waivers are permissible in employment cases) said nothing. Of these five, Chief Justice Roberts’ vote may be most in play for a ruling excluding PAGA claims from arbitration.

• Justice Thomas continues to express a view that the FAA does not apply in state court.

In prior cases, Justice Thomas has indicated a belief that the FAA does not apply to cases in state court. In today’s oral argument, Justice Thomas asked a single question that appeared to reflect that he continues to hold this view, though how he will apply it here is uncertain.

The Court’s questioning, and the arguments from counsel, all seem to indicate that the Court will continue its present trend and enforce bilateral arbitration agreements pursuant to their terms. In other words, it seems likely that employers may, after Viking River Cruises, use properly drafted arbitration agreements as a way to help protect themselves against PAGA litigation. We will know for sure when the Court issues its decision, which is expected by the end of June 2022.

Ogletree Deakins will continue to monitor this bill and provide updates on our Arbitration and Alternative Dispute Resolution blog. Important information for employers also is available via the firm’s webinar and podcast programs.