Aon  |  Financial Services Group

In an 8-1 decision, the United States Supreme Court held that the Federal Arbitration Act (FAA), favoring the enforceability of employment-related arbitration agreements and class action waivers, preempts and overrides California state’s Private Attorneys General Act (PAGA). PAGA allows individuals to file private lawsuits to enforce California labor laws, effectively stepping into the shoes of its Attorney General and obtaining an additional recovery that claimants share with the state.

Historically, any employer-mandated arbitration agreements and class action waivers were unenforceable under PAGA based on the theory that the state had not entered a private employer contract and could not be bound by it. The Court’s Viking River Cruises v. Moriana case decision reverses that holding.

The claimant in the suit resigned from her job as a sales agent and, alleged that she did not receive her final paycheck on time. She then became the lead claimant in a broader class action lawsuit. Viking objected to the suit, stating that because the workers had signed arbitration agreements with class action waivers, the claims had to be arbitrated individually.

After an adverse result at the California Superior Court, Viking River Cruises appealed to the Supreme Court, which resolved the dispute in its favor. The decision still allows for the possibility that the California Legislature could revise PAGA in the future to allow an employee to bring representative claims in court. For now, however, the decision is a significant victory for employers in the state of California.