US Supreme Court Holds FAA Preempts State Laws Prohibiting Class Action Waivers
California’s labor code includes a provision known as the Private Attorney General Act of 2004 (PAGA). PAGA permits individuals to bring cases alleging California labor code violations on behalf of themselves and others, acting as a private attorney general. PAGA has been interpreted by California courts to invalidate arbitration agreements that include class action waivers. The question in Viking River Cruises, Inc. v. Moriana, 596 US ___ (2022), handed down on June 15, was whether California’s interpretation of PAGA was preempted by the Federal Arbitration Act (FAA),
In Viking River Cruises, the employee and employer were parties to a pre-dispute arbitration agreement that included a class action waiver. The employee filed a PAGA action in California state court, on behalf of herself and others, alleging a variety of California labor code violations. The employer moved to compel arbitration of the employee’s individual claims. The motion was denied pursuant to the California Supreme Court’s decision in Iskanian v CLS Transp. Los Angeles, LLC, 59 Cal 4th 348; 327 P3d 129 (2014), which held class action waivers were not enforceable in PAGA cases as a matter of California public policy. Eventually, the employer appealed to the Supreme Court on the grounds the FAA preempted California’s interpretation of PAGA. The Supreme Court reversed 8-1, with Justice Thomas’ lone dissent based on his view the FAA does not apply to cases brought in state courts.
The Court majority's decision was underpinned by the FAA’s commandment that state laws purporting to prohibit the enforceability of arbitration agreements, per se, were preempted by the FAA. In other words, as the FAA provides, an arbitration agreement that was unenforceable for a reason that would invalidate any other contract (e.g., unconscionability or duress) was also unenforceable under the FAA. However, a state law that rendered an arbitration agreement unenforceable simply because it was an arbitration agreement was preempted by the FAA. Thus, while California’s PAGA law was not itself inconsistent with the FAA; the Iskanian decision, which prohibited class action waivers in PAGA cases, was preempted. The Court concluded by remanding the case back to the California state courts for further proceedings.
An interesting side-issue is the effect of the Court’s decision on the rest of the employee’s PAGA case. The employee’s claims against the employer would be resolved through arbitration. But what about the claims the employee asserted on behalf of others? The Court’s decision left that California law question open for resolution by California’s courts.