Key takeaways
- The Federal Arbitration Act requires enforcing agreements to arbitrate an employee's individual PAGA claim.
- Employees sent to arbitration for their individual claims maintain standing to pursue representative PAGA claims in court.
- Employers face a new dual-track litigation structure for wage and hour disputes.
- Pre-dispute waivers of the right to bring a representative PAGA action remain unenforceable under California law.
The Decisions
The U.S. Supreme Court and California Supreme Court have fundamentally restructured how the Private Attorneys General Act operates when an employee signs an arbitration agreement. In 2022, the U.S. Supreme Court decided Viking River Cruises, L.P. v. Moriana (2022) 596 U.S. 639, holding that the Federal Arbitration Act requires enforcing an agreement to arbitrate an employee's individual PAGA claim. The following year, the California Supreme Court decided Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, answering the lingering question of what happens to the remaining claims. Together, the decisions force individual PAGA claims into arbitration while keeping representative claims alive in state court.
Why It Matters
This dual-track system changes the financial and procedural calculus of defending wage and hour claims in California. Previously, employers either faced a unified court action or avoided the representative claims entirely if an arbitration agreement applied. Now, companies must fund an individual arbitration proceeding while simultaneously defending a representative action in court. The arrangement guarantees that an employee bound by an arbitration agreement can still act as a proxy for the state, exposing employers to aggregate penalties even when the named plaintiff's specific grievances are resolved behind closed doors. This creates parallel litigation costs and introduces complex questions regarding which proceeding should advance first.
Who Should Care
For lawyers
Defense counsel must adapt litigation strategies to manage parallel proceedings. A victory in the individual arbitration may strip the plaintiff of aggrieved employee status, potentially mooting the representative court action. Consequently, securing a stay of the state court representative action pending the completion of arbitration is a primary objective. Plaintiff attorneys must prepare to litigate the individual arbitration aggressively to preserve standing for the broader representative case, knowing that a loss before the arbitrator could terminate the entire action.
For consumers and parties
California workers who sign arbitration agreements as a condition of employment retain the ability to hold their employers accountable for widespread labor violations. While their personal compensation disputes will be decided by a private arbitrator, they can still pursue penalties on behalf of their coworkers and the state in a public courtroom. Employers face the reality that standard arbitration agreements will no longer shield them from representative PAGA exposure.
Legal Background
Before 2022, California law treated PAGA claims as indivisible. In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the California Supreme Court held that pre-dispute waivers of the right to bring a representative PAGA action are unenforceable. The court reasoned that a PAGA action is fundamentally a law enforcement mechanism where the employee acts as a proxy for the state's labor agency.
The Iskanian framework rested on the premise that the state is the real party in interest in any PAGA lawsuit. Because the state did not sign the arbitration agreement, the logic followed that the state's proxy could not be forced to arbitrate the state's claims. Following that decision, courts interpreted the rule to mean that PAGA claims could not be split into individual and representative components. If an employee brought a PAGA claim, the entire action stayed in court, effectively nullifying the employer's arbitration agreement for those specific claims. Employers argued this framework violated federal law by treating arbitration agreements unfavorably.
What the Courts Did
In Viking River, the U.S. Supreme Court held the FAA preempts the rule against splitting individual from representative PAGA claims. The Court reasoned that forcing an employer to arbitrate representative claims alongside individual claims alters the fundamental, bilateral nature of arbitration. Because the FAA protects the enforcement of arbitration agreements according to their terms, the employee's individual claim can be compelled to arbitration.
The U.S. Supreme Court then addressed the fate of the remaining representative claims. The federal justices suggested the plaintiff would lose standing for the representative claims once the individual claim was sent to arbitration, effectively ending the lawsuit.
However, standing to bring a PAGA claim is strictly a matter of state law. In Adolph, the California Supreme Court rejected the federal court's standing view. The state justices held that an employee compelled to arbitrate the individual PAGA claim still has standing to pursue the representative (non-individual) PAGA claims in court. The California Supreme Court examined the statutory language and determined that an aggrieved employee does not lose that status merely because their personal dispute is resolved in a different forum.
How It May Be Applied
The practical result is a two-track structure: the individual claim in arbitration, the representative claims in court. Trial courts will regularly face motions to stay the representative action pending the outcome of the individual arbitration.
The sequence of these proceedings carries heavy strategic weight. If an arbitrator determines the plaintiff suffered no Labor Code violations, the employer will likely return to court and argue the plaintiff is no longer an aggrieved employee, thereby lacking standing to continue the representative action. Conversely, if the arbitrator finds a violation, plaintiffs will argue that finding establishes their standing in court. Courts will need to determine the exact preclusive effect of the arbitrator's findings on the subsequent state court litigation.
Managing discovery across two distinct forums presents another procedural hurdle. Parties will likely dispute whether discovery in the individual arbitration can encompass broader company policies, or if such evidence gathering must wait for the representative court action. Judges and arbitrators will have to coordinate to prevent duplicative efforts and ensure the arbitration remains an efficient alternative to litigation.
Before and After: PAGA Arbitration
| Legal Issue | Pre-2022 Rule | Current Rule |
|---|---|---|
| Claim Splitting | PAGA claims cannot be split. | Individual and representative claims must be split if covered by an arbitration agreement. |
| Individual Claim | Litigated in court alongside representative claims. | Compelled to private arbitration. |
| Representative Claims | Litigated in court. | Litigated in court, maintaining plaintiff standing despite the split. |
Plain-English Summary
When an employee sues a company for breaking California labor laws, they often use a law called PAGA to sue on behalf of themselves and their coworkers. For years, California courts said these lawsuits had to stay together in a public court, even if the employee signed a contract agreeing to private arbitration. The U.S. Supreme Court changed the rules, deciding that the employee's personal dispute must go to arbitration. The California Supreme Court then clarified that the employee can still continue the broader lawsuit for their coworkers in court. This creates two separate legal battles happening at the same time: a private arbitration for the individual worker, and a public court case for everyone else.
This article is general legal information and commentary about developments in California law. It is not legal advice, does not address your specific situation, and is not a substitute for advice from a licensed attorney. Reading this article and contacting us through this website do not create an attorney-client relationship.
Sources & authorities
- Viking River Cruises, L.P. v. Moriana (2022) 596 U.S. 639 — source
- Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104 — source
- Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 — source
Further reading
Additional perspectives (a link is not an endorsement):