Representative actions brought under California’s Private Attorneys General Act (PAGA) have been the bane of that state’s labor lawyers’ existence since PAGA’s enactment in 2004. Thanks to this week’s Supreme Court decision in Viking River Cruises, Inc. v. Moriana, forward-thinking clients can say goodbye to all that.

The PAGA Predicament

PAGA enlists employees as private attorneys general to enforce California labor law. By its terms, PAGA authorizes an “aggrieved employee” to file an action against a former employer on behalf of himself or herself and other current or former employees to obtain civil penalties that previously could have been recovered only by a labor and workforce agency of the State of California. If the employee wins, the state gets 75% of the award, with the remaining 25% going to the plaintiff and other employees. Because the statute only gives 25% of the proceeds to the plaintiff, however, to sweeten the pot, PAGA allows any employee with standing to seek any civil penalties the state can seek, including penalties for violations involving employees other than the PAGA plaintiff.  Thus, as Justice Alito described it in his majority opinion, “[a]n employee who alleges he or she suffered a single violation is entitled to use that violation as a gateway to assert a potentially limitless number of other violations as predicates of liability.”

Based on these provisions alone, PAGA has been a formidable weapon in the hands of the labor and employment plaintiff’s bar. In Justice Alito’s words, the individual penalties are “modest” but “given PAGA’s additive dimension, low-value claims may easily be welded together into high-value suits.” They “greatly increase risks to defendants.”

And, to make matters worse, the California courts had held that a class action or collective action waiver would not be enforced against PAGA claims as a matter of state public policy.

The Plaintiff’s Claims

In Moriana, the Supreme Court was called on to decide whether the Federal Arbitration Act preempted the California rule against contractual waivers of the right to assert “representative” PAGA claims, meaning the claims of other employees joined to a PAGA suit. The plaintiff, a former Viking Cruise employee, complained that the cruise line failed to pay her the final wages it owed her within 72 hours, as required by California law. Her complaint, however, also contained a grab bag of other claims on behalf of other Viking employees, ranging from violations of minimum wage law, overtime, rest, and meal periods requirements, the timing of pay, and pay statements. Viking moved to compel Moriana to arbitrate her “individual” PAGA claim. The California trial court denied that motion, however, because preexisting California Supreme Court precedent, the Iskanian case, prevented parties from waiving their “representative” standing to bring PAGA claims in court or arbitration. Iskanian also invalidated agreements to separately arbitrate or litigate “individual PAGA claims.”

The Partial Preemption

In its long-awaited opinion this week, the Supreme Court held that the FAA preempts PAGA in part. That partial victory, in this setting, was a major win for California employers because, as a practical matter, it makes the waiver of representative PAGA claims in employment arbitration clauses enforceable in California—at least for now.

The court first rejected Viking’s argument that the FAA categorically preempts all PAGA claims. Only “the changes brought about by the shift from bilateral arbitration to class-action arbitration are too fundamental to be imposed on parties without their consent.”

The court noted that PAGA suits are not the same as class actions. A class-action plaintiff “can raise a multitude of claims because he or she represents a multitude of absent individuals.” A PAGA plaintiff, in contrast, represents a single principal—the California labor agency. Thus, PAGA claims, by themselves, exhibit virtually none of the procedural characteristics of class actions. There is no representation of injured individuals, so there is no need for class certification. The only characteristic the PAGA suit shares with a class action is an increased risk to defendants. But many types of lawsuits—not just class actions—carry increased risks of exposure.

At the same time, the court ruled that PAGA does conflict with the FAA to the extent it permits the joinder of claims of other employees unrelated to the PAGA plaintiff’s own claim and precludes individual arbitration of a plaintiff’s claims. Quoting its prior Lamps Plus and Stolt-Nielsen decisions, the court reasoned that this portion of PAGA “unduly circumscribes the freedom of parties to determine the ‘issues subject to arbitration’ and ‘the rules by which they will arbitrate’ … and does so in a way that violates the fundamental principle that ‘arbitration is a matter of consent.’” In other words, the statutory joinder of other employees’ claims compelled parties to arbitrate claims they did not jointly agree to arbitrate. If the parties agree to arbitrate the individual claims of the PAGA plaintiff, the statute would allow the employee plaintiff to “abrogate that agreement after the fact and demand either judicial proceedings or an arbitral proceeding that exceeds the scope jointly intended by the parties.” The effect is to coerce parties into withholding PAGA claims from arbitration.

The Practical Result

So where did this leave the parties? Under the court’s reasoning, the individual PAGA claims of the plaintiff went to arbitration. The representative claims, however, were left in no-man’s land. “When an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” In other words, the employee lacked standing to raise the representative claims of other employees, and “the correct course is to dismiss her remaining claims.”

So if the court gave each side “half a loaf,” why do we say this decision is a major victory for employers? It’s simple: If an employer can force an employee to arbitrate his or her individual PAGA claims, the court said that under California law, the remaining representative claims must be dismissed for lack of standing. Those claims become neutered, and that is where the in terrorem effect of PAGA comes from.

Of course, as Justice Sotomayer pointed out in concurrence, California could change the statute to eliminate the PAGA plaintiff’s lack of standing to assert the phantom claims of other employees while his or her individual claims are being arbitrated. But until that happens, the Supreme Court has removed a potent weapon in the arsenal of the California labor plaintiff’s bar.