Supreme Court limits California labor law that allows private suits against employers

The Supreme Court building in Washington.
(Kent Nishimura / Los Angeles Times)

In a win for California employers, the court’s majority ruled that the Federal Arbitration Act preempts or overrides a state law that authorizes private lawsuits on behalf of groups of workers, even if they had agreed to resolve their disputes through individual arbitration.

In a victory for California employers, the Supreme Court on Wednesday placed limits on a state labor law that authorizes private lawsuits on behalf of groups of workers, even if they had agreed to resolve their disputes through individual arbitration.

The majority ruled the Federal Arbitration Act preempts or overrides the state law.

California is the only state to authorize such private suits as a means of enforcing its labor laws, the justices said. But by doing so, the state allows employees to escape the binding arbitration agreements they signed when they were hired, the court said.

The outcome appears to limit private suits but not block them entirely.

The conservative high court has repeatedly overruled judges in California who refused to uphold arbitration clauses.

Over nearly two decades, the justices have steadily closed the door to courts and lawsuits and instead upheld private arbitration as the means to resolve costly disputes, whether involving banks, credit cards, retail purchases or the workplace.

In 2004, the California Legislature adopted a different approach to protect the rights of workers. The Private Attorneys General Act said lawyers may file claims against an employer seeking penalties on behalf of a group of employees and for multiple violations of the labor code. Three-fourths of the money recovered is paid to the state.

Lawmakers said the state’s labor laws were going unenforced, even when workers were cheated out of their wages or not paid extra for overtime work. They said the state did not have enough staff of its own to police industries where “labor law violations are the most rampant, including agriculture, garment, construction, car wash, and restaurants.”

In challenging the law, a coalition of California employers said the measure had encouraged a handful of plaintiffs’ law firms to regularly file broad claims accusing a company of multiple violations that affected hundreds or even thousands of employees.

They said companies were threatened with a costly judgment if they refused to settle. They also argued that employees should be required to abide by their signed agreements to arbitrate disputes.

In defense of the law, the state’s attorneys and state judges argued the lawsuits spoke for the state, not the employees who were cited as plaintiffs.

The ruling should not affect unions that often arbitrate disputes on behalf of groups of workers. In that instance, both the employer and employees have chosen arbitration.

The case before the court was Viking River Cruises vs. Moriana. It arose when Angie Moriana quit her job in 2017 as a sales agent in Los Angeles for Viking River Cruises and alleged she did not receive her last paycheck on time. She then became the lead plaintiff in a private suit alleging multiple violations on behalf of a large group of Viking employees.

Viking objected and said she and the other employees had agreed to arbitrate “any dispute arising out of or relating to your employment.” Moreover they had waived any right to any “class, collective or private attorney general action.”

But a Los Angeles County Superior Court judge and the state appeals court refused to block the lawsuit. They said that under California law, the “state is the real party” bringing the suit over violations of the labor code.

Viking appealed to the Supreme Court, arguing that California and its state courts refused to honor binding arbitration agreements.

This story originally appeared in Los Angeles Times.

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