On July 17, the California Supreme Court issued its long-awaited decision in Adolph v. Uber Technologies, Inc., finally clarifying the question of what constitutes standing under California's Private Attorneys General Act (PAGA) after the U.S. Supreme Court had taken a position contrary to long-held state law in a 2022 decision. Adolph rejected the U.S. Supreme Court's conception of PAGA standing, holding that an employee can pursue their individual claim under PAGA in arbitration without losing standing to serve as the plaintiff as the representative PAGA as it moves forward in court.
PAGA deputizes employees to act as agents of the State of California and litigate cases where there appears to be a violation of California's Labor Code that affects a group of employees (called "aggrieved employees"). With PAGA, California hoped to extend its enforcement reach beyond what it could accomplish on its own.
California courts had long taken the position that claims under PAGA could not be split into their individual and representative parts and, more importantly, that such claims were unwaivable—meaning otherwise enforceable arbitration agreements could not apply to these claims. Until last summer, that is. In June 2022, the U.S. Supreme Court in Viking River v. Moriana largely rejected California's position on PAGA claims, holding that the Federal Arbitration Act preempted the rule prohibiting courts from dividing PAGA claims into their individual (i.e., Labor Code violations allegedly suffered by the named plaintiff) and representative (i.e., Labor Code violations allegedly suffered by other employees) parts. Accordingly, the U.S. Supreme Court held that an employee's split individual PAGA claim could be compelled to arbitration under an enforceable agreement.
If a named plaintiff's individual PAGA claim was compelled to arbitration, the U.S. Supreme Court reasoned, that named plaintiff would lack standing to pursue their representative PAGA claim, and those claims must be dismissed. Previewing the uproar from the plaintiffs' bar and the State of California itself, Justice Sotomayor concurred but noted that the majority's understanding of state law as to PAGA standing could be (and perhaps should be) soon corrected by a state court: "[I]n an appropriate case, [California courts] will have the last word."
The California Supreme Court's Decision
Erik Adolph was an Uber Eats driver who brought a PAGA claim on behalf of himself and other drivers against Uber for misclassifying drivers as independent contractors, among other claims. Mr. Adolph executed an arbitration agreement with Uber as a condition of his employment, which required him to arbitrate all individual claims against Uber and waive any class claims. The Court of Appeal in Adolph decided, pre-Viking River, that Adolph's PAGA claim could not be arbitrable. Uber appealed to the California Supreme Court.
Following Viking River, the California Supreme Court requested briefing on the specific standing question of whether, as the U.S. Supreme Court majority seemed to think, a plaintiff compelled to arbitrate his or her individual PAGA claims did not maintain standing to litigate representative PAGA claims on behalf of other employees. The California Supreme Court's decision confirmed that, yes, Viking River was wrongly decided with respect to dismissal of non-individual PAGA claims after the aggrieved employee's individual PAGA claim is compelled to arbitration.
Adolph re-affirmed that an aggrieved employee must satisfy just two standing requirements under PAGA: (1) be employed by the alleged violator employer; and (2) have suffered at least one Labor Code violation during their employment. Likewise, "[a]rbitrating a PAGA plaintiff's individual claim does not nullify the fact of the violation or extinguish the plaintiff's status as an aggrieved employee."
Uber had argued that permitting both an individual arbitration and the representative PAGA claim to proceed would unlawfully allow an aggrieved employee to relitigate whether he or she has standing in court, even if he or she agreed to resolve that issue in arbitration. In rejecting Uber's argument, the California Supreme Court noted that trial courts retain discretion under California Code of Civil Procedure, Section 1281.4, to stay a court action when an issue involved in the case is ordered to arbitration. Consequently, if an arbitrator determines that a plaintiff is an aggrieved employee and that determination is confirmed, then that determination is binding on the court and the plaintiff has standing under PAGA to litigate the representative claim. On the other hand, the Court stated, if the arbitrator decides that a plaintiff is not an aggrieved employee, then that plaintiff will no longer have standing to, and subsequently cannot, pursue his or her non-individual PAGA claim in court.
The California Supreme Court's explicit approval of the above scenario strongly suggests that, in cases where an individual PAGA claim is sent to arbitration, the usual practice for the trial court should be to stay the court action until the arbitration is concluded, so that there are no conflicting determinations on whether the plaintiff does or does not have standing under PAGA (i.e., did or did not suffer a Labor Code violation during employment). In sum, PAGA litigation now involves a two-step process where the representative plaintiff is subject to an enforceable arbitration agreement. First, an arbitration should proceed to determine whether the plaintiff suffered a statutory violation sufficient to grant standing under PAGA. Second, the representative action concerning the group of putative aggrieved employees can proceed in the trial court.
Key Employer Takeaways
Adolph confirms what many suspected (and what many California appellate courts already held)—employers will not be able to avoid representative PAGA claims through arbitration agreements. Yet Adolph did not vitiate Viking River entirely; an enforceable, carefully worded arbitration agreement may still prove a very effective tool in enabling employers to avoid the burdens of class actions, and to raise potentially prohibitive guardrails for putative PAGA plaintiffs.
In particular, forcing an individual plaintiff to adjudicate his or her own alleged Labor Code violations in a lengthy and potentially expensive arbitration, with the risk of an arbitrator stripping the plaintiff of PAGA standing, could give many plaintiffs' attorneys pause when deciding to move forward with a PAGA claim for a client with an enforceable arbitration agreement. Evidence collected in arbitration could also give a defending employer further ammunition for its defenses, even should the individual plaintiff prevail in arbitration and proceed with their representative court action. For example, pointing to extensive, months-long discovery and a hearing in arbitration just to determine if one employee is "aggrieved" under the statute may prove to be a strong manageability defense in court when applied to a group of hundreds or thousands of putative employees.
Employers should also review their arbitration agreements to ensure they are up to date with current law as expressed in Viking River and Adolph. A compliant severability clause and removal of unenforceable terms (like a wholesale waiver of PAGA claims) are a must. Employers may also want to consider inclusion of a mandatory stay clause wherein the employee agrees to stay any representative PAGA action until the individual PAGA claim concludes in arbitration.
As always, employers may contact one of Venable's experienced Labor and Employment attorneys with questions regarding the impact of the Adolph decision and guidance moving forward.