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  • Rybicki & Associates P.C.

Revise Arbitration Agreements to Cover PAGA Claims (or Suffer the Consequences)!

It has been clear for nearly a year that employers should adopt employment arbitration agreements covering claims under the California Labor Code Private Attorneys General Act (“PAGA”). While state courts long held PAGA to be exempt from arbitration, the United States Supreme Court disagreed in its 2022 Viking River Cruises, Inc. v. Moriana decision (available here).

Viking River Cruises, Inc. ended a dilemma faced by employers drafting effective arbitration agreements. While it was possible to include PAGA or use vague language referring to “representative” or “mass” claims, the strategy risked state-court refusal to enforce the rest of the agreement in non-PAGA cases. This made it almost impossible to craft language that did not either (1) "carve out" PAGA completely, or (2) include PAGA claims - risking the agreement’s enforceability.

Employment arbitration agreements should now be revised immediately, despite the effort needed to replace current language, to ensure PAGA coverage if necessary.

One recent California case highlights the urgency of this issue. In Duran v. EmployBridge Holding Co., an employer had excluded PAGA claims but argued that – under the rest of the agreement’s language – it ought to apply to an employee’s PAGA suit following the United States Supreme Court’s Viking River Cruises, Inc. decision.

The arbitration agreement did cover most non-individual claims, stating that neither the employee nor the employer would bring any “class action, collective action, or representative action claims against each other in arbitration, in any court, or otherwise.” This certainly would prevent against class-action claims by the employee given United States Supreme Court authority holding that – unless an employer expressly agrees – class claims cannot be made by employees covered by arbitration agreements.

The problem with the arbitration language was that it expressly excluded PAGA claims. Its only reference to PAGA stated:

“Claims for unemployment compensation, claims under the National Labor Relations Act, claims under PAGA and any claim that is non-arbitrable under applicable state or federal law arbitrable under this Agreement.”

Using this language was a reasonable decision before the Viking River Cruises decision. But relying on the agreement's express language, the court found that it had not changed and the PAGA exclusion still applied. As a result, the employee’s PAGA claim survived and was sent down for trial in civil court.

Duran v. EmployBridge Holding Co. highlights the urgent need for employers to revise their arbitration agreements now to clarify two issues.

First: the agreement expressly covers PAGA claims.

Second: the agreement allows an employee to bring only her own individual PAGA claim, excluding arbitration of all claims based on Labor Code violations allegedly suffered by other employees. This ensures that PAGA claims will remain a single-employee matter in employment arbitrations (though the California Supreme Court will soon consider the fate of PAGA claims based on employees other than the individual’s arbitration agreement in another case).


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