The Case
California’s Private Attorney General Act (PAGA) allows an employee “aggrieved” by a violation of state’s wage, hour, and wage payment law to obtain civil penalties “on behalf of himself and other current or former employees.” The aggrieved employee must first inform the state of her proceeding and, if successful, can secure civil penalties scheduled according to the number and length of time of the violations: 75% of the penalties going to the state, 25% to be distributed to the employees affected by the violations. Those employees are not parties to the proceeding nor are they entitled to any damages tailored to their violations.
Angie Moriana was a sales representative for Viking River Cruises. She was subject to an agreement providing that the exclusive forum to hear employment disputes was arbitration, but the agreement prohibited her from bringing any “class, collective or representative PAGA action.” She sued Viking in state court for violation of wage payment law and sought scheduled PAGA penalties for herself and for other employees: violations of overtime, meal and rest periods, improper pay statements. Viking moved to compel arbitration limited to Ms. Moriana’s personal claims. According to Viking, she could not bring claims representative of other employees, which precluded the presentation of any PAGA penalties, for her or others. The courts denied the motion under governing California law and Viking sought review in the U.S. Supreme Court on this question:
Whether the Federal Arbitration Act requires the enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.
The Court granted the writ.
The case was positioned between two lines of authority. Under the first, the preclusion would be given effect, while under the second, it would not.
On the first, the Court had held that the Federal Arbitration Act (FAA) was intended to build on the advantages arbitration held over civil litigation: that it was fast, flexible, and informal. It termed those features as characteristic of “bilateral arbitration.” The Court dwelt on these in deciding whether employment discrimination claims—in a case of age discrimination—would be heard in arbitration under a collective bargaining agreement.
When confronted with exclusions from arbitration of class actions (under consumer law) and group actions (under the Fair Labor Standards Act) the Court held these exclusions to be consistent with the FAA: historically, as outside the ambit of statutory bilaterality because numerous parties would be aggregated in the proceeding, the disposition of whose claims could well conduce toward a “procedural morass.” However, unlike class and group cases, the employees for whom PAGA penalties were being sought were not to be parties. Nevertheless, presenting these claims in an arbitration, even though only for penalties, would be analogous to the bringing of class or group actions that the Court had held outside the Act.
On the second, a public agency dedicated to the enforcement of labor protective law—in the case, the Equal Employment Opportunity Commission (EEOC)—not being bound by any agreement to arbitrate was free to perform its mission on behalf of any complaining employee, even one who was bound by an arbitration agreement. As the public agency could proceed in its name, it would seem to be the case that it could delegate its function to another, Ms. Moriana, to act for it. And so, the argument would run, as she could only proceed in arbitration she could accordingly present the state’s claims in that forum as its representative. That would be a bilateral proceeding, a contest between one party, Ms. Moriana, and her employer, Viking River Cruises, consistent with the Court’s teaching.
The Decision
Justice Alito, writing for all but one member of the Court, bifurcated the question: he separated the prohibition on acting in any representative capacity from the prohibition on representing other employees in seeking PAGA penalties. On the first, he found representative actions to be historically precedented and doctrinally consistent with the FAA: “Non-class representative actions in which a single agent litigates on behalf of a single principal are part of the basic architecture of much of substantive law.” He gave this doctrinal proposition an historical grounding by pointing to two cases in New York, in 1934 and 1942, where shareholder agreements in closed corporations provided for arbitration over shareholder derivative claims. The doctrinal proposition was reiterated four times in the space of two short paragraphs lest there be any doubt in the matter: the FAA embraced “single-principal, single-agent representative actions.” It followed that Ms. Moriana could seek all remedies due her for Viking’s alleged labor law violations; that is, she could represent the Attorney General in seeking the added penalties that flowed from her statutory wrongs.
The Court then turned to the penalties sought as a result of Viking’s other labor law violations. This was another matter altogether, not of representation—for that single-principal representation was consistent in both—but of the joinder of the principal’s claims. Here the Court turned to the principle of freedom of contract: a party, the employer, cannot be compelled to arbitrate claims the party did not agree to arbitrate: the state cannot “defeat the ability of parties to control which claims are subject to arbitration.” Even in a liberal environment of claim joinder in civil procedure, joinder includes a limited class that bears a “distinctive legal relationship” to the plaintiff
such as that between shareholders and a corporation or between a parent and a minor child. PAGA departs from that norm by granting the power to enforce a subset of California public law to every employee in the State. This combination of standing to act on behalf of a sovereign and mandatory freeform joinder allows plaintiffs to unite a massive number of claims in a single-package unit.
Claim joinder places in prospect the “higher stakes” game of “massive scale disputes,” akin to what the Court adverted to in disallowing class actions and groups to proceed in arbitration; and of the risk as well of “in terrorem” class settlements, which the Court said was incompatible with the FAA.
At first blush, the Court’s reliance on freedom of contract is puzzling. By express contractual terms Viking no more agreed to hear Ms. Moriana’s representative claims for her PAGA penalties than it did for those of others, yet the former it may not disclaim. The distinction would seem to be this: when Ms. Moriana appears in Viking’s arbitration system as an aggrieved employee, she appears as well in her role as the representative of the Attorney General in presenting the additional claim it has for the penalties resulting from Viking’s violations of her rights. The two are intimately connected; are, legally, inseparable. Not so of her claim for penalties for other employees. She is still the agent of a single principal—the state—but she cannot present claims for others, whatever their relationship to her principal, as these others have an insufficient relationship to her. To admit their claims holds the promise of overwhelming the arbitral system with masses of claims it is not capable of handling. If this is the rationale, it remains puzzling still.
On the matter of “standing,” as the Court put it, Ms. Moriana is not joining “every employee in the State,” she is making claims of only those of her co-workers at Viking whose labor rights have been violated in common. Her connection to them—which is recognized by section 216 of the Fair Labor Standards Act, allowing action by groups of “similarly situated” co-workers, and which is recognized as well by section 7 of the National Labor Relations Act, protecting co-workers’ right to engage in “concerted activity for mutual aid and protection” with one another—would seem no less distinct and worthy of legal recognition than the relationship one owner of a share of corporate stock in Texas has to the owner of another share of that stock in Maine. On the matter of claim proliferation, the Court’s concern for the prospect of mass claims would seem inapplicable where the penalties might be sought for only a small, tightly knit group of co-workers; but that possibility is not entertained. From what appears, such a distinction is not to be drawn. Only a mass of penalties for a diverse mass of workers is contemplated in which the Court assumes out of hand the incapacity of arbitrators to manage such claims—more on that below.
In the event, after the dust has settled Ms. Moriana can seek the 75% of scheduled penalties that go to the state and the 25% that go to her for Viking’s proven violations of her labor law rights, but not the penalties for others whose rights have similarly, or equally, been violated. In other words, the FAA allows California’s employers to blunt PAGA’s broad remedial role by adopting arbitration systems with such claim preclusive provisions. Whence Justice Sonia Sotomayor’s separate observation on the state’s capacity to expand the PAGA model. This could be done by uncoupling representative capacity from aggrieved employee status by establishing a broad standing doctrine similar to traditional qui tam or whistleblower claims. An option would be to provide for greater state agency involvement with authority to review settlements. With such changes, the impact of the Viking River Cruises decision in California might be limited, but the law’s end still achieved.
Begged Questions
The decision incites three lines of inquiry—historical, empirical, and doctrinal—and then begs them. This goes to the quality of the Court’s reasoning.
A. Historical
The Court propounds and repeatedly emphasizes that the FAA is hospitable to arbitration brought in a representative capacity, but only of a certain kind: that it be “single-agent, single-principal.” Nothing within the text of the statute supports this assertion. Undeterred, the Court points to shareholder derivative arbitration using cases that post-date the statute and that make no reference to it. This is rather odd. One would think the question would be resolved by looking at the world of arbitration which Congress saw, or would have seen had it looked, when the law was enacted and which Congress legislated to enforce. Such would be consistent with the Court’s earlier approach to understanding the law’s reach.
In Circuit City Stores, Inc., v. Adams, the Court addressed the interstate worker exemption. It held that in 1925, Congress took those workers over whom it most clearly had jurisdiction under the interstate commerce clause and excluded them from the FAA, but it took those workers over whom it had no jurisdiction or for whom jurisdiction was dubious and included them. The next and obvious question is: why would Congress have done that? The Court addressed it by an historical explanation, by distinguishing the situation of the two groups at the time. Relying on an opinion by Judge Richard Posner, the Court noted that seamen were already subject to arbitration, that railroad workers would soon follow, in the Railway Labor Act of 1926, and that, as Posner put it, for “Motor carriers [who] were not yet comprehensively regulated…it may have seemed (and was) only a matter of time before they would be, hence, the expansion of the exclusion from seamen to railroad to other transportation workers.”
This is pure fabrication. The Railway Labor Act was drafted privately by the executives of the railway industry and union leaders and presented to Congress which passed—or rubber-stamped—it in 1926. There is no evidence that Congress was, or even could have been, aware of the terms of any draft when the FAA was in process between 1923 and 1924. Nor could arbitration for other interstate transportation workers—truckers and busmen—have possibly been anticipated at the time. They did secure arbitration later, as a result of collective bargaining after the National Labor Relations Act of 1935, a product of the Great Depression—neither of which was a glimmer in anyone’s eye in 1925.
What is important is not that the Court’s history was fabricated, but that history was thought to be relevant, and it is. Had the world of employment at the time been looked to, Congress would have seen that arbitration was conducted under union agreements in a variety of industries—the building trades, cigar making, glass and pottery production, and above all, the apparel industry—agreements in which unions represented their members over contractual violations for wages, hours, and working conditions. These were arbitrations where a single agent—a union—represented a multiplicity of principals, their members, often bringing their claims as a group into arbitration. These foreshadowed the system of grievance arbitration that developed under the National Labor Relations Act in which a union, as the exclusive representative, a single agent, owes its principals, each of the members of a bargaining unit, a fiduciary duty of fair representation. This was the system, but one of “single-agent, multiple-principal” representation, that was before the Court in 14 Penn Plaza and to which the Court pointed in emphasizing the attributes of bilateral arbitration under the FAA.
Consequently, the Court’s treatment of representative arbitrations is passing strange. Why would the Court look to shareholder arbitration and not to labor arbitration to underline the FAA’s compatibility with representative claims in the employment setting? The explanation would seem to be that labor arbitration confutes the “single-agent, single-principal” model the Court asserts the FAA enshrined, but that is only speculation. The “why” is a question begged.
B. Empirical
The Court reiterates the prudential grounds that animated it in Epic Systems allowing group Fair Labor Standards Act claims to be precluded in arbitration: that arbitration is ill-suited to the disposition of collective claims; that allowing it would produce a procedural morass and conduce toward strike suit-like arbitrations. In Epic Systems, the National Academy of Arbitrators attempted to persuade the Court that these grounds were ill-founded: that unions frequently aggregate common claims of contractual violation for group presentation—in labor parlance these are called “class claims”—often violations of contractual provisions that echo provisions of labor protective law and sometimes of very large groups; that these are disposed of in arbitration no differently in terms of speed, informality, and flexibility than in the disposition of bilateral claims. (For example, a “class grievance on behalf of all affected employees” that paychecks were not issued to the workforce on a weekly basis, Allied Waste, Inc., 2005 LA Supp. 111592 (Goldberg, Arb. 2005); a “class action for all employees regarding the nonpayment of extra driving time from an employee’s home to the Company’s branch office,” ADT, LLC, 133 LA 1821 (Felice, Arb. 2014); a “class action on behalf of ‘all affected employees’” for payment for check-in/check-out time, First Student, Inc., 131 LA 736 (Landau, Arb. 2013); a “class grievance” over the Employer’s failure to distribute pay stubs to the work force by U.S. mail, Caterpillar Inc., 126 LA 554 (Goldstein, Arb. 2009); and a good deal more.)
Concerning the creation of a procedural morass with attendant untoward consequences, the arbitrators pointed out that such would be far more likely to result from the disallowance of group claims; that the result of that disallowance would be the initiation of massive numbers of repetitive individual arbitrations, far more likely to prove vexatious than group arbitrations. The latter has proven to be prophetic.
As repetition can be an educational device, the arbitrators made the same argument to the Viking River Cruises Court that it had made in Epic Systems: that the record in labor arbitration is rich and contradicts the claim that arbitration is ill-suited to the disposition of large group claims. Again, the Court chose to remain oblivious to the facts; the empirical question was begged.
C. Doctrinal
The practice and law of labor arbitration have developed under section 301 of the Labor Management Relations Act and the Court’s gloss placed on it in the Steelworkers’ Trilogy and its progeny. However, the 14 Penn Plaza Court used labor arbitration as a model for the FAA’s conception of what arbitration is. Even so, the Court had never held and did not hold in that case that labor arbitration was governed by the FAA. That had remained an open question. A question begged in Viking River Cruises is whether that remains to be so.
The problem arises out of the Court’s dogged insistence that the model of representative arbitration the FAA embraces is “single-agent, single-principal,” whereas the model the Labor Act embraces is “single-agent, multiple-principals.” The FAA’s inapplicability may not have practical significance in terms of what the FAA does, but inapplicability would reinforce the Trilogy’s conception of labor arbitration, not as a substitute for litigation—as the 14 Penn Plaza Court saw in it—but as an inextricable part of the institution of collective bargaining with a logic all its own. If that is the meaning, it is devoutly to be wished.