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  • Kevin Cleveland and Hannah Moon

IMPORTANT! SCOTUS Holds Individual PAGA Waivers in Arbitration Agreements Enforceable

On June 15, 2022, the Supreme Court of the United States (SCOTUS) published an opinion in Viking River Cruises, Inc. v. Moriana which holds that Private Attorneys General Act (PAGA) claims may be divided into individual and non-individual claims through an arbitration agreement. As a result, we recommend that all employers with arbitration agreements immediately revise such agreements to include language regarding individual PAGA claims. We will go into the case and this recommendation in more detail below.

As most of you likely know, the California Legislature passed PAGA in 2004, allowing for employees to step into the shoes of the State for the purpose of pursuing penalties for various Labor Code claims. In 2014, the California Supreme Court determined that PAGA actions could not be subject to mandatory arbitration. Likewise, California courts have insisted that PAGA claims could not be split into arbitrable “individual” claims and nonarbitrable “representative” claims, so PAGA claims have been left in court while individuals’ other claims are arbitrated.

SCOTUS affirmed lower courts’ holdings that wholesale PAGA waivers are not enforceable. However, it determined that the Federal Arbitration Act (FAA) preempts the portion of California case law which forbids splitting “individual” and “representative” PAGA claims. As a result, employers can arbitrate employees’ “individual” PAGA claims.

This is vitally important because, once an employee’s “individual” PAGA claims have been sent to arbitration, that employee no longer has standing to maintain a PAGA action because they cannot bring the representative claims in the arbitration, and the court must dismiss claims where the plaintiff is no longer a proper party to the court case. Thus, if employees sign properly drafted arbitration agreements, they can be compelled to arbitrate “individual” PAGA claims, preventing them from maintaining a “representative” claim and saving the employer the cost of the associated penalties related to all the other employees. If all employees have signed such agreements, this would mean that the employer essentially no longer has to deal with the threat of a litigated PAGA claim. Therefore, we reiterate our earlier recommendation that employers revise their arbitration agreements immediately to clearly include language regarding “individual” PAGA claims and re-issue them to employees for signature.

Importantly, as we discussed in this article from October of 2021, California’s law prohibiting employers from requiring employees to sign arbitration agreements as a condition of employment (AB 51) is still pending with the Ninth Circuit Court of Appeals. In February of this year, the Ninth Circuit issued an order deferring consideration of a rehearing of the case on AB 51 until SCOTUS issued a decision in the Viking River Cruises case. We expect the Ninth Circuit to decide on the petition for rehearing the AB 51 case soon. That being said, unless or until the Ninth Circuit or SCOTUS determines that AB 51 is preempted by the FAA, employers should still ensure that they are not requiring arbitration agreements to be signed as a condition of employment.

If you have questions about revising your arbitration agreements or how to implement them in a way that is compliant with AB 51 as it currently stands, please contact the experts at Young, Cohen & Durrett, LLP. Additionally, if you typically have Young, Cohen & Durrett draft and update your handbooks and arbitration agreements, we urge you to reach out to us as soon as you can to revise your arbitration agreements accordingly.

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Scrypton Technologies
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