Mariam Zuhaib/AP Photo
People stand on the steps of the U.S. Supreme Court on February 11, 2022.
It’s another year, and another chance for the US Supreme Court to further undermine workers’ rights.
In a case that will be heard this week, Viking River Cruises, Inc. v. Moriana, the Court is deciding whether to gut the California Private Attorneys General Act (PAGA), a law passed in 2003. Instead of a traditional lawsuit where an employee might sue their employer over a personal injury, PAGA allows employees to sue over any breach of the California Labor Code—essentially allowing them to stand in the shoes of state government to enforce the state’s labor law. If the plaintiff wins, the state keeps 75 percent of civil penalties assessed by the Court, while the plaintiff keeps 25 percent plus attorney’s fees. In 2019, that added up to $88 million in PAGA penalties collected by the state.
With limited staffing in state agencies, these private enforcement actions and companies’ desire to avoid new lawsuits have “helped to shift California’s corporate culture toward compliance,” according to an analysis by the UCLA Labor Center.
A sign of PAGA’s effectiveness is the list of national business organizations, from the U.S. Chamber of Commerce to the National Retail Federation to Uber, all submitting amicus briefs asking the Court to eviscerate the law. With multiple states debating enacting their own versions of PAGA, business lobbies obviously want to kill the law before it spreads.
The reason PAGA is such a critical enforcement tool is because of the rise of mandatory arbitration, where employees are forced to give up their right to go to Court to enforce wage or discrimination disputes as a condition of employment. Instead, they must have any dispute decided by an arbitrator chosen by the employer.
Just over twenty years ago, the Supreme Court in a narrow 5-4 decision used a bizarre reading of the 1925 Federal Arbitration Act to allow employers to force employees into arbitration. The result is that 80 of the Fortune 100 companies now include an arbitration clause in their employment contracts. In such private tribunals, workers win far less often and the median damages awarded are just $36,500, compared with $86,000 in state courts and $176,000 in federal court, an Economic Policy Institute analysis found. Worse, because of their secrecy, arbitration decisions settling sexual harassment, race discrimination, and other employer abuses largely disappear from the public record.
The perceived difficulty of winning arbitration cases typically translates into fewer claims being filed. “We know that there's a claim suppression effect,” says Cathy Ruckelshaus at the National Employment Law Project (NELP), which is organizing an amicus brief in the Viking River Cruises case on behalf of workers’ rights advocates.
In California, due to the widespread use of forced arbitration, “PAGA has become the only option for many workers,” argues Caitlin Vega, who led the California AFL-CIO’s lobbying work for much of the last two decades.
The Threat to Anti-Corporate Corruption Laws
If the Supreme Court rules for the employers and kills PAGA, it won't just be a signal to further accelerate forced arbitration. It could shut down a host of other anti-corruption lawsuits that depend on employee whistleblowers being able to file lawsuits.
PAGA was modeled on a class of laws, called qui tam actions, meant to supplement government enforcement of criminal statutes with private enforcement. Qui tam laws date back to the Middle Ages when the English king lacked police to enforce the law, so he paid a bounty to those who brought private actions.
The most prominent modern version in the United States is the False Claims Act, created originally to fight fraud in Civil War contracts. It has been strengthened several times with amendments in recent decades, and as a result, $5.6 billion in False Claims Act penalties were assessed in 2021, most involving health care fraud and a significant portion deriving from individual qui tam lawsuits. Many states have their own parallel False Claims Acts, and the DC City Council and New York State have extended private lawsuits to fight illegal tax fraud as well.
Employees come forward with qui tam cases due largely to the financial incentives. If those disappear along with related whistleblower protections, or they are forced into employer-controlled arbitration, those laws will lose much of their effectiveness.
Supreme Court conservatives have built their whole mandatory arbitration doctrine on increasingly baroque, convoluted legal constructions.
The Chamber of Commerce has this as an explicit goal: In its amicus brief in the Viking River case, it explains that several lower courts have forced employees and consumers filing False Claims Act lawsuits into arbitration. In qui tam cases, the relevant government usually has an opportunity to step in and take over the lawsuit themselves. The Chamber position is that if governments decline to do so, whether because of lack of staffing or corporate pressure, private lawsuits should largely be blocked if employees or consumers have been forced to sign arbitration agreements.
The result, the Chamber knows, is that employees who fear retaliation by their employer if the government drops their case won’t come forward in the first place.
The Rube Goldberg Court Doctrine Supporting Its Corporate Agenda
To gut PAGA, the Court will have to resort to tortured legal reasoning, but that will not be a stretch for the right-wing Court majority. They have built their whole mandatory arbitration doctrine on increasingly baroque, convoluted legal constructions.
Take the original 2001 Circuit City decision, which first expanded mandatory arbitration to nearly every workplace in the nation. When the Federal Arbitration Act was first proposed in 1925 to recognize arbitration clauses in business-to-business contracts, organized labor specifically objected to it being applied to labor contracts. Then-Commerce Secretary Herbert Hoover advocated for the inclusion of an explicit exemption, reading that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce.” The amendment was duly adopted, and labor dropped their opposition.
So how did the Court turn around and apply the FAA to labor contracts, despite one of the clearest legislative histories possible? They ignored it.
The majority seized on the “seamen” language to assert that only employment involved in interstate transportation was exempted, not the usual legal definition of interstate commerce encompassing all employment.
In a scathing dissent, Justice John Paul Stevens responded, “Today, the Court fulfills the original—and originally unfounded—fears of organized labor by essentially rewriting the text” of the law.
After Circuit City, the Supreme Court majority would systematically dismantle almost every state limit on mandatory arbitration, most significantly in its 2011 AT&T Mobility LLC v. Concepcion ruling that companies could bar class actions in arbitration. This meant that workers would have to hire their own lawyer to pursue a claim, making it nearly impossible to afford.
Which brings us to the Rube Goldberg legal move Viking River Cruises is asking the Court to make. They claim that, because qui tam lawsuits apply to violations of state labor law, impacting not just the individual employee but multiple employees, PAGA suits are “like” class action lawsuits, and therefore are barred by the previous rule in Concepcion.
California courts have already clearly highlighted the key difference. Where class actions are contract disputes that seek only to compensate the individual losses of employees, PAGA is an enforcement statute meant to punish lawbreaking companies and “ensure an effective disincentive for employers to engage in unlawful and anticompetitive business practices.” Since the state receives 75 percent of the civil penalties, the Supreme Court would not just be undermining a criminal enforcement statute but attacking a revenue source for a state government that itself never agreed to the arbitration clause in question.
As employee Angie Moriana notes in her brief for the Court, “Viking’s arguments amount to a request that this Court transform the FAA from a vehicle for protecting parties’ agreements to arbitrate into one for precluding individuals from submitting claims for resolution in court or arbitration.”
Since the Supreme Court chose to take the appeal by Viking River Cruises, it’s safe to bet that PAGA will likely be gutted in that exact perverse way, with the only question being whether the damage will extend to wiping out most other employee whistleblower and qui tam lawsuits as well.
How Should Workers Rights Advocates Respond?
The simplest response would be for Congress to overturn the Circuit City rewriting of the FAA and permanently exempt worker and consumer lawsuits from forced arbitration. The House of Representatives has repeatedly voted to do this, most recently earlier this month, but as with so many issues, the filibuster allows a minority in the Senate to block any response to the Supreme Court’s perverse Federalist Society rewritings of statutes.
Congress recently voted to ban forced arbitration solely in sex abuse cases, following a House vote, so that’s some small progress. However, no one has expressed any real argument why those suffering racial discrimination or wage theft don’t deserve similar protections. “There shouldn't be an elevation of any one of those harms above the others,” argues Ruckelshaus.
If the Court does undermine PAGA suits by employees, the other option at the state level, Ruckelshaus argues, is empowering non-employee groups like unions and worker centers to bring similar lawsuits, since they would not be bound by employment contracts stopping them from bring suit. “Strategic enforcement, even publicly funded collaborations with such groups,” argues Ruckelshaus, “may be the best route to get compliance and justice for workers.”
Protecting workers’ rights through individual employee legal action has always faced obstacles. As the Supreme Court increasingly makes it nearly impossible, states should recognize that empowering unions and other worker organizations to enforce those rights may be the only effective option left.
