Until the United States Supreme Court’s decision in Viking River Cruises v. Moriana in 2022, California law had established that Private Attorneys General Act (“PAGA”) claims could not be subject to binding arbitration.  With Viking River, however, employers were free to begin compelling “individual” PAGA claims to arbitration and, based on subsequent California case law, leaving the remaining “representative” PAGA action stayed in Superior Court pending an outcome of the individual arbitration.

Based on this precedent, the employer in Ford v. Silver F, Inc. sought to compel an employee’s individual PAGA claims to arbitration based on an arbitration agreement that required arbitration of “any employment-related disputes” except for “representative claims under [PAGA].”  Critically, the arbitration agreement was signed in 2018, when California law completely prohibited PAGA arbitration.

The trial court denied the employer’s motion to compel arbitration, and the Court of Appeal affirmed the trial court’s decision.  The question before the appellate court was how to interpret the exclusion of “representative claims under [PAGA].”  The court first looked at the language surrounding the exclusion.  The provision listed other possible claims that could not be subject to arbitration including: “claims for workers compensation or unemployment compensation”; ERISA claims; and administrative complaints submitted to a governmental agency.  These excluded claims are all examples of employment-related claims that an employee is likely to bring against an employer, and they are not claims ordinarily pursued on a class, collective, or representative basis.  Given the context, the court found that the PAGA exclusion was to be construed broadly, similar to the other types of claims excluded from the scope of arbitration.

As importantly, the Court of Appeal focused on the timing of the execution of the arbitration agreement.  The court emphasized that, when the agreement was signed in 2018, California law treated all PAGA claims as indivisible, and that contract interpretation is based on the law at the time of execution, not later changes such as in Viking River, four years later.

Like so many other recent arbitration and employment cases, Ford serves as a cautionary tale for employers.  The employer in Ford lost out on the right to compel arbitration when it likely could have arbitrated the claims in dispute, but for its reliance on an outdated agreement.  Employers hoping to avoid a similar fate should strive to have their arbitration agreements periodically reviewed and updated, particularly in the ever-shifting legal landscape of California.