May Supreme Courtroom win backfire for California employers?

Safety fencing is seen outdoors the US Supreme Courtroom in Washington, DC, US, June 14, 2022. REUTERS/Sarah Silbiger

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(Reuters) – On its face, Wednesday’s ruling from the US Supreme Courtroom on a California regulation that permits staff to say an array of claims on behalf of the state is an enormous win for employers.

The courtroom held in Viking River Cruises, Inc v. Moriana that employers can require staff to arbitrate particular person claims underneath California’s Personal Lawyer Common Act, or PAGA, which permits staff to hunt statutory damages, on behalf of the state, for labor code violations. The Supreme Courtroom’s 8-1 resolution overturned longstanding California precedent that, in impact, allowed staff to evade arbitration of big-money claims for labor code violations that affected staff throughout the corporate.

That is a loss for workers, mentioned Michael Rubin of Altshuler Berzon, one of many corporations that represented former Viking River worker Angie Moriana. However the Supreme Courtroom, as I am going to clarify, stopped approach wanting permitting employers to make use of necessary arbitration and sophistication motion waiver provisions to dodge PAGA claims altogether. And though the courtroom concluded that Moriana would lack standing to pursue different PAGA claims after her personal claims went to arbitration, Rubin mentioned he is confidant the justices had been mistaken about that. In response to him, staff ought to quickly be capable to resume submitting consultant PAGA fits alleging company-wide violations, even when they’ve agreed to arbitrate their particular person claims.

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“This may occasionally change into one of many shortest-lived Supreme Courtroom victories in historical past,” Rubin mentioned.

Viking River counsel Paul Clement of Kirkland & Ellis did not reply to my e-mail requesting a response to Rubin’s brash prediction. On Wednesday, a lawyer for the US Chamber of Commerce Litigation Middle hailed the Supreme Courtroom’s ruling to my Reuters colleague Dan Wiessner. “Trial attorneys can now not use California PAGA claims to pressure staff, shoppers and companies into costly and time-consuming lawsuits,” the Chamber lawyer mentioned.

To know Rubin’s counterintuitive optimism, it’s a must to look again at what Viking River and its many, many amici from enterprise and commerce teams informed the Supreme Courtroom about PAGA litigation in California. As I’ve written, employers argued that PAGA fits had been, mainly, class actions in a really skimpy disguise. It was no accident, they mentioned, that plaintiffs’ attorneys solely started submitting lots of PAGA fits after the Supreme Courtroom confirmed that employers may require staff to waive their proper to litigate or arbitrate as a category.

Viking sought to eviscerate the California regulation, arguing in its opening transient to the Supreme Courtroom that underneath the Federal Arbitration Act, staff who’ve agreed to arbitrate disputes with their employers can’t assert PAGA claims in any respect. Viking, in different phrases, wished the Supreme Courtroom to dismantle California’s total PAGA scaffolding, within the title of the Federal Arbitration Act.

The Supreme Courtroom didn’t do this in Wednesday’s resolution. In reality, as Rubin identified, the courtroom particularly held that PAGA fits are usually not class actions, as a matter of construction and process, and that Supreme Courtroom precedent on the Federal Arbitration Act doesn’t require states to accede to waivers by which plaintiffs give up the precise to carry consultant motion.

“The ruling,” Rubin mentioned, “holds that arbitration can’t be used to strip staff of substantive state-court rights. It vastly expands a assure for state-law rights to be free from arbitration.” (Apparently, Chief Justice John Roberts and Justices Amy Coney Barrett and Brett Kavanaugh didn’t be a part of the a part of the opinion discussing the overarching interaction between PAGA and the Federal Arbitration Act.)

Why does any of that matter if employers can nonetheless require staff to arbitrate their particular person claims underneath PAGA? Bear in mind, the Supreme Courtroom’s holding is that even when employers cannot wipe out PAGA altogether by requiring staff to waive the precise to pursue consultant claims, firms can nonetheless implement necessary arbitration of staff’ particular person claims. (Theoretically, staff may assert the identical claims of labor code violations each on their very own behalf and, concurrently, on behalf of California by means of a PAGA motion. In PAGA instances, staff accumulate 25% of the state’s restoration.)

In any case, the facility of PAGA actions, for workers and the state, is that these instances agglomerate violations that affected dozens, tons of and even hundreds of staff. That leverage is vastly diminished if employers can pressure each worker to arbitrate his or her claims individually. And within the Supreme Courtroom’s majority opinion, written by Justice Samuel Alito, the courtroom mentioned that’s exactly what’s going to occur in Moriana’s case. PAGA, Alito wrote, doesn’t enable an worker like Moriana to press on with claims based mostly on violations affecting different staff as soon as her personal claims have been sheared off for particular person arbitration.

However what if Alito is mistaken about that interpretation of the California regulation? Justice Sonia Sotomayor raised such a prospect in her competitors in Wednesday’s resolution. California courts, she mentioned, can have “the final phrase” on whether or not arbitration of a employee’s particular person PAGA declare extinguishes the employee’s standing to pursue broader claims. Alternatively, Sotomayor mentioned, California lawmakers may amend PAGA to guarantee that staff retain a proper to pursue companywide claims even when they need to arbitrate their very own particular person claims.

Rubin informed me Sotomayor is precisely proper. In reality, he mentioned, the California Supreme Courtroom has already held, in 2020’s Kim v. Reins Worldwide California, Inc, that an “aggrieved employee” retains standing to pursue PAGA fits even after settling their particular person claims.

The Reins ruling did not ponder a situation by which a employee’s particular person PAGA claims had been separated from everybody else’s. However Rubin mentioned the choice displays the gulf between the constitutional necessities to determine a plaintiff’s proper to sue in federal courtroom and California’s a lot looser standing necessities, which derive from the language of the statute at problem within the case. So even when the Reins case is not controlling precedent on whether or not PAGA plaintiffs retain standing after their particular person claims are pared away, Rubin mentioned, it could be straightforward for lawmakers to make that repair to the statute.

I am positive Rubin’s speculation will quickly be examined, maybe in Moriana’s case. The Supreme Courtroom beneficial the go well with, with directions that her non-individual claims be dismissed, based mostly on its understanding of standing in California regulation. California courts could have a factor or two to say about that.

Learn extra:

US Supreme Courtroom offers main blow to California employee class actions

Calif. employers perverting arbitration regulation, personal AG plaintiffs inform SCOTUS

California’s Personal AG Act is a scourge, employers inform SCOTUS

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Alison Frankel

Thomson Reuters

Alison Frankel has lined high-stakes business litigation as a columnist for Reuters since 2011. A Dartmouth school graduate, she has labored as a journalist in New York protecting the authorized trade and the regulation for greater than three many years. Earlier than becoming a member of Reuters, she was a author and editor at The American Lawyer. Frankel is the writer of Double Eagle: The Epic Story of the World’s Most Priceless Coin.

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