Decoding the Future of Representative Action Employment Claims Litigation, Arbitration and Preemption after Viking River Cruises, Inc. v. Moriana (U.S.S.C. Case No. 20-1573) (Viking River Cruises)

This article is intended as a strategy guide for in-house and outside general counsel but comments from the Plaintiffs bar are equally appreciated. It is intended to digest the Court’s thoughtful opinion into core decision points.

The history of workplace claims have had several key influencers.  Perhaps the key one was when the California Supreme Court decided that wage and hour violations which were part of a company policy could be an unfair business practice. The range of examples extended from direct violations of labor laws to more complex issues of improper classification of individuals as exempt, non-exempt or independent contractors. In later years, the limits were tested as to workplace accidents for which OSHA claims also exist (see Solus Industrial Innovations, Inc. v. Superior Court of Orange County, 4 Cal.5th 316 (February 8, 2018). 

The existence of a state based administrative enforcement process was not mutually exclusive to an unfair business practices claim – the net result  opening the door to claims premised on the practice or policy or claim itself, rather than any individual workers claims. Indeed, much early litigation was focused on whether the individual bringing the suit need be an employee at all.

This was in substantial contrast to class actions under federal law, especially those  based on the Fair Labor Standards Act, which are structured as opt in actions where an individual would allege a claim based on their own labor and working conditions but others, once filed as a class, could only participate by affirmatively joining the case, i.e. as opt in plaintiffs.

Thereafter, the traditional class action threshold questions would still have to be asked as to commonality of claims, common interests and typicality and adequacy of the class representative.

Of course, traditional state court class actions could still be brought, with the key difference being that the class suitability issues had to be pled and litigated first, but once a class was certified, and threshold class issues plead, then notice procedures required that individuals affected opt out of a putative class.

Similarly, no threshold vetting of a complaint when filed by the assigned judge (as is the case under federal racketeering statutes) ever made its way into state law practice.

Such unfair competition actions (e.g., California Business & Professions Code section 17200, but common in many jurisdictions nationally) had no such threshold inquiries – only whether a specific policy producing a labor law wrong existed.

In a  ballot initiative known as Proposition 64, the voters redefined a right to bring so called representative actions in a procedure evocative of qui tam and false claims actions. The new enactment required prior notice to the employer and the state with a statutory period that included the opportunity to cure the alleged violations and, parallel to that, a limited right of the state to take over the claim and to also participate in ultimate recovery. Styled as a private attorney general action – the law – known as PAGA – included access to attorney’s fees and penalties. This notice period is similar but not the same as right to sue provisions under federal and state anti-discrimination statutes.

PAGA never became as robust as federal false claim and qui tam actions and the remedial period and the state intervention provisions became effectively moribund. The obligation to share settlement proceeds with the state has consistently been a minor factor. Settlements often focused on non- paga claim elements. The one exception has been where individual judges supervised settlements.

In an effort to rein in such actions employers increasingly turned to arbitration agreements to limit their uncontrolled exposure to class and representative claims. The efficacy of such efforts became the key issue before the Court in Viking.

As Justice Alito, writing for a near unanimous Court observed,

This ruling was dictated by the California Supreme Court’s decision in Iskanian. In that case, the court held that pre-dispute agreements to waive the right to bring “representative” PAGA claims are invalid as a matter of public policy. What, precisely, this holding means requires some explanation.  PAGA’s unique features have prompted the development of an entire vocabulary unique to the statute, but the details, it seems, are still being worked out.

. . .

An unfortunate feature of this lexicon is that it tends to use the word “representative” in two distinct ways, and each of those uses of the term “representative” is connected with one of Iskanian’s rules governing contractual waiver of PAGA claims. In the first sense, PAGA actions are “representative” in that they are brought by employees acting as representatives—that is, as agents or proxies—of the State.  But PAGA claims are also called “representative” when they are predicated on code violations sustained by other employees. In the first sense, “‘every PAGA action is . . . representative’” and “[t]here is no individual component to a PAGA action,” Kim, 9 Cal. 5th, at 87, 459 P. 3d, at 1131 (quoting Iskanian, 59 Cal. 4th, at 387, 327 P. 3d, at 151), because every PAGA claim is asserted in a representative capacity. But when the word “representative” is used in the second way, it makes sense to distinguish “individual” PAGA claims, which are premised on Labor Code violations actually sustained by the plaintiff, from “representative” (or perhaps quasi-representative) PAGA claims arising out of events involving other employees. For purposes of this

,,,, we will use “individual PAGA claim” to refer to claims based on code violations suffered by the plaintiff. And we will endeavor to be clear about how we are using the term “representative.” 

The Court concluded that “ Iskanian also adopted a secondary rule that invalidates agreements to separately arbitrate or litigate “individual PAGA claims for Labor Code violations that an employee suffered,” on the theory that resolving victim-specific claims in separate arbitrations does not serve the deterrent purpose of PAGA.” And as a consequence, arbitration agreement would not be viewed as enforceable if the net result was to split PAGA actions between individual and representative claims.

The Court borrowed from nomenclature shared with class action litigation.

  A PAGA action asserting multiple code violations affecting a range of different employees does not constitute “a single claim” in even the broadest possible sense, because the violations asserted need not even arise from a common “transaction” or “nucleus of operative facts.

. . .

A PAGA plaintiff, by contrast, represents a single principal, the LWDA, that has a multitude of claims.  As a result of this structural difference, PAGA suits exhibit virtually none of the procedural characteristics of class actions.  The plaintiff does not represent a class of injured individuals, so there is no need for certification.  PAGA judgments are binding only with respect to the State’s claims and are not binding on nonparty employees as to any individually held claims. Arias, 46 Cal. 4th, at 986, 209 P. 3d, at 933–934. This obviates the need to consider adequacy of representation, numerosity, commonality, or typicality.  And although the statute gives other affected employees a future interest in the penalties awarded in an action, that interest does not make those employees “parties” in any of the senses in which absent class members are

 . . .

The FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.

Accordingly,

Under our holding, that rule is preempted, so Viking is entitled to compel arbitration of Moriana’s individual claim. . . . As a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims. 

CONLUSION AND SUGGESTIONS

The decision and the concurring opinions acknowledges that the facts and procedural maturity of individual cases may vary. However, as a practical  matter, the question – faced equally by employers and plaintiffs’ counsel is whether to proceed to individual arbitrations (or agreements to mediate), whether voluntarily or by motions to compel and as a related question whether the tactical pendulum will swing back to the more rigorous processes of the traditional class action. Under any circumstances the author expects employers to make much broader use of agreements to arbitrate in their workplace policies.

A related open question is whether Viking will further the reliance on FAA preemption as it might apply to regulated wage and hour issues in trucking and logistics, which naturally raise questions of individual “representative” claims.

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