Today, the United States Supreme Court announced a highly significant decision affecting the waiver of PAGA action lawsuits in arbitration agreements. Viking River Cruises v. Moriana.

The Private Attorney General Act (“PAGA”) has been in effect in California since 2004 and enables plaintiffs to sue employers over violations of California's Labor Code on behalf of the State. The resulting lawsuits generally see most of the money paid out to the State of California to support the State's Labor Code enforcement efforts. As readers may know, PAGA cases are procedurally easier to bring than a standard class-action lawsuit, and often result in significant penalty awards.

PAGA's importance to wage-and-hour litigation has increased exponentially due to a United States ruling that employers can require employees to waive the right to a class action through an agreement to arbitrate on an individual basis, which contrasts with a subsequent California Supreme Court ruling that PAGA claims are not similarly subject to waiver.

Last December, the United States Supreme Court granted review to Viking River Cruises in a case in which its arbitration agreement was invalidated under California's PAGA ruling. In this case, Viking River Cruises argued that the Federal Arbitration Act (“FAA”) requires the enforcement of bilateral arbitration agreements and overrides state laws like PAGA.

Today, the Supreme Court held that the FAA does in fact preempt California's ruling “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” So, while validating California's PAGA ruling to the extent that an employer's arbitration agreement cannot require the “wholesale waiver of PAGA claims,” the Court held that PAGA claims can be split between an “individual PAGA claim,” and a “representative PAGA claim.”

Most critically, the Court held that if an individual PAGA claim is sent to arbitration, the individual will lack standing to pursue the representative PAGA claim in court and thus the case must be dismissed.

Considering this decision, employers with arbitration agreements with PAGA waivers should review and revise their arbitration agreements to ensure that the representative PAGA waiver is enforceable. For employers without arbitration agreements at all, competent counsel should be sought to create and roll out arbitration agreements that provide the most protection possible from class and PAGA actions.