The Impact of Viking River Cruises on PAGA Claims: What Happened in Agustin Gutierrez v. Panera LLC

Los Angeles, CAOn October 22, the California Court of Appeal, Second Appellate District held that an employee whose employment agreement explicitly excluded Private Attorneys General Act (PAGA) claims from arbitration, did not have to arbitrate those claims against his employer. The terms of his contract effectively trumped a change in law that occurred after the agreement was made.

The keys to understanding Agustin Gutierrez v. Panera LLC, a California labor lawsuit are:

• first, the timeline and
• secondly, the very explicit language of his employment contract.

The law governing the intersection of arbitration agreements and PAGA changed significantly with the Supreme Court’s 2022 decision in Viking River Cruises v. Moriana, as Agustin Gutierrez’s claims were pending.

What happened?

When he was hired, Gutierrez agreed to arbitrate his claims against his Panera with a proviso that excluded any PAGA claims from the arbitration process. Disputes arose thereafter, and he filed a California labor lawsuit against his employer. At the time, both parties agreed to arbitrate his non-PAGA claims and litigate his PAGA claims in court. Then, in Viking River Cruises, the Supreme Court fundamentally changed the rules governing the enforceability of arbitration agreements and PAGA claims.

Panera moved to compel arbitration of Guiterrez’s individual PAGA claims, and the trial court granted the motion. However, the Court of Appeal rejected Panera's argument, holding that the specific language of the arbitration agreement:

“Employee may bring or participate in a suit seeking remedies under the Private Attorneys General Act (PAGA) seeking to enforce State rights under the California Labor Code[,]" preserved the plaintiff's right to pursue his PAGA claim in court. The court reasoned that the Federal Arbitration Act (FAA) does not require the enforcement of arbitration agreements that clearly exclude certain types of claims.

For readers who do not spend time pondering the puzzles of arbitration, PAGA and the FAA, there’s a lot to unpack here.

Why workers resist arbitration of employment disputes

On its face, arbitration seems like a good way to resolve employment disagreements. Proponents of arbitration argue that it tends to be cheaper and faster than a labor lawsuit. This is the basic policy that animates the FAA.

On the other hand, however, the process tends to favor employers:

• employees lose the right to sue for violations of many important employment laws, including rights to minimum wages and overtime pay, rest breaks, protections against discrimination and unjust dismissal, privacy protection, family leave, and a host of other state and federal employment rights;
• on average, employees and consumers win less often and receive much lower damages in arbitration than they do in court; and
• employers tend to win cases more often when they appear before the same arbitrator in multiple cases, indicating that they have a repeat-player advantage over employees from regular involvement in arbitration.

Understanding PAGA

PAGA empowers employees to bring representative actions on behalf of themselves and other aggrieved employees to enforce California labor laws. Plaintiffs essentially act on behalf of the California Labor Commissioner’s Office. Most of the benefit, including penalties assessed on the employer, redounds to the benefit of the Division of Labor Standards Enforcement. This, in turn, is designed to benefit workers who are the “eyes and ears” on the ground and more likely to be aware of labor law infractions.

Employees may recover a smaller portion of civil penalties for labor code violations, even if they have not personally suffered damages. PAGA claims have become a powerful tool for workers to seek justice and deter employer misconduct.

The Viking River Cruises decision

In Viking River Cruises, the Supreme Court held that the FAA requires courts to enforce arbitration agreements, even if they contain class action waivers. This decision raised concerns about the enforceability of PAGA claims, as some employers argued that PAGA claims are essentially class action lawsuits.

Key takeaways from Agustin Gutierrez

There are lessons in this decision for both employers and employees. California employers should review their arbitration agreements to ensure they are compliant with Viking River Cruises and Agustin Gutierrez. They should consult with legal counsel to draft clear and enforceable arbitration agreements that specifically address PAGA claims. Employees should make sure that they understand the terms of the onboarding agreements that they sign. Workers should know their rights under PAGA and, where possible, consult with an attorney to understand their options.

Three issues are particularly important:

• clear and unambiguous language: Employers seeking to enforce arbitration agreements against PAGA claims must ensure that the agreement contains clear language waiving the employee's right to pursue PAGA claims. If new hires are not certain about what provisions mean, they should ask. Neither party should rely on vague or ambiguous language.
• the ongoing evolution of PAGA law: The Agustin Gutierrez decision is a significant development in PAGA law, but the story is likely not yet finished. It is important to stay updated on future developments and potential changes in the law.
• the passage of time: Absent further changes in the law, the number of California employment agreements that are affected by Agustin Gutierrez may dwindle.