California Supreme Court Issues Hotly Anticipated Decision on PAGA Claims and Arbitration

In a long-awaited decision issued on July 17, 2023, the California Supreme Court held in Adolph v. Uber Technologies Inc. that a plaintiff who has been compelled to arbitrate his individual claims for civil penalties pursuant to the Private Attorneys General Act (“PAGA”) may still pursue a lawsuit for non-individual PAGA claims seeking civil penalties for alleged Labor Code violations suffered by other employees.  The Adolph decision represents a blow to California employers that had hoped to use arbitration agreements to keep PAGA litigation risks under control. 

After Adolph, California employers cannot rely on the favorable ruling in Viking River Cruises Inc. v. Moriana, in which the U.S. Supreme Court held that once an employee’s individual claims under PAGA are compelled to arbitration, the employee would not have standing to bring a representative claim under PAGA on behalf of other aggrieved employees.  The California Supreme Court’s holding is in line with recent California Court of Appeal decisions such as those we reported in Galarsa v. Dolgen California LLC and Piplack v. In-N-Out Burgers.

Procedural and Factual Background

Plaintiff Erik Adolph filed a lawsuit against Uber in 2019, alleging it misclassified him and other delivery drivers as independent contractors rather than employees and thus failed to reimburse drivers for work-related expenses.  In February 2020, Adolph amended his complaint to include a claim for civil penalties under PAGA.  In July 2020, the trial court granted Uber’s motion to compel arbitration of Adolph’s individual Labor Code claims and dismissed Adolph’s class action claims.  Adolph filed an amended complaint which only retained the PAGA claims without his individual claims.  The trial court then granted Adolph’s request for a preliminary injunction, which prevented arbitration from proceeding. Uber filed a second motion to compel arbitration, which was denied by the trial court.  Uber appealed, and in April 2022 the California Court of Appeal confirmed the trial court findings in an unpublished decision.

In May 2022, Uber sought review of the decision with the California Supreme Court.  While Uber’s petition was pending, in June 2022 the U.S. Supreme Court decided Viking River Cruises Inc. v. Moriana, which involved related issues.  The U.S. Supreme Court ruled that PAGA violates the rights of employers under the Federal Arbitration Act (“FAA”) to the extent the statute permits an employee who is contractually required to arbitrate employment-related disputes to bypass arbitration and pursue their claims against their employer.  As for the claims of other employees, the U.S. Supreme Court majority concluded that such claims would have to be dismissed because the employee sent to arbitration would no longer have standing to pursue that litigation.  Justice Sonia Sotomayor, in a concurring opinion, invited California courts to “have the last word” on these issues.  In July 2022, the California Supreme Court granted review in Adolph to decide whether plaintiffs may pursue non-individual PAGA claims in court even after being compelled to arbitration.

The California Supreme Court’s Decision

Contrary to the U.S. Supreme Court’s decision in Viking River, the California Supreme Court in Adolph held that even when a plaintiff-employee’s individual PAGA claims are fully committed to arbitration, the employee maintains standing to continue representing other employees in a PAGA lawsuit in court.  Like the courts in Galarsa and Piplack, the California Supreme Court found that PAGA has only two requirements to confer standing: (1) the person was employed by the alleged violator; and (2) the person suffered one or more of the alleged violations.  According to the Court, neither of those prerequisites are stripped from a plaintiff merely because the individual portion of the PAGA claims is sent to a separate arbitration proceeding.  The Court further explained that its decision was aligned with PAGA’s legislative purpose of serving the state’s interest in enforcing the Labor Code.  In the Court’s eyes, PAGA’s purpose is to allow prosecution of the numerous Labor Code violations an employer may have committed, not merely the ones experienced by the individual plaintiff.

Practical Considerations for California Employers

Unfortunately, with Viking River rejected, California employers may find themselves battling PAGA claims in multiple forums.  However, the California Supreme Court did offer some consolation to employers in the form of an alternate strategy discussed in its decision.  If the FAA applies to the agreement, the Viking River decision still allows arbitration of the plaintiff’s individual claims.  The Adolph court suggested that if an individual claim was compelled to arbitration, the trial court could stay the representative PAGA claim in court pending the arbitrator’s decision.  If the arbitrator finds that the plaintiff did not personally suffer any violations, the plaintiff would lose standing to pursue their representative claims.  Employers defending PAGA actions should discuss this potential strategy with their counsel. 

For those California employers that revised their arbitration agreement to take advantage of the Viking River decision, now is the time to review the agreement again and make sure it has a severability clause and that it does not require dismissal of representative PAGA claims.

Employers seeking guidance regarding the impact of the Adolph decision on their business should contact their Payne & Fears LLP attorneys.