California employers have more drama when it comes to PAGA – California’s Private Attorneys General Act. On Monday, July 17, 2023, the California Supreme Court ruled in Adolph v. Uber Technologies, Inc. that an employee may litigate “non-individual” or “representative” PAGA claims in court on behalf of other employees, even if the employee’s “individual” PAGA claims must be arbitrated. On the one hand, this ruling was not a shocking development: over the past few months, appellate courts across California reached the same result as the Adolph court. On the other hand, the ruling runs contrary to last year’s holding in Viking River Cruises v. Moriana. Hate it or love it, this holding is a significant one in the play that is PAGA.
As employers may recall, the scene was set in June 2022, when the United States Supreme Court ruled in Viking River that employers may compel arbitration of employee’s individual PAGA claims, provided there is an arbitration agreement covered by the Federal Arbitration Act. The Court in Viking River explained, “[u]nder PAGA’s standing requirement, a plaintiff has standing to maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action.” The Court’s rationale was that once an “individual” claim leaves the courtroom, there is no statutory mechanism in PAGA under which a court may adjudicate the remaining “non-individual” claims. Notwithstanding Viking River’s explicit language, the first half of 2023 saw California appellate courts steadily reject the Supreme Court’s conclusion. These state appellate courts reasoned the Supreme Court’s discussion was mere dicta, and that PAGA standing was a matter of state law for California courts to decide.
The California Supreme Court has now spoken, and its justices agree with their Golden State colleagues. Though an employee may have individual claims sent to arbitration, the employee nonetheless retains standing to pursue the non-individual (aka representative) claims in litigation. The Adolph court explained PAGA authorizes “an aggrieved employee” to act as a proxy for the state to sue an employer for both themself and other current and former employees, even if that action takes place across two separate forums.
Although the appellant, Uber, presented multiple arguments, the California Supreme Court rejected them all. One of Uber’s arguments was that the ruling would permit a plaintiff to relitigate whether they are an aggrieved employee in court to establish standing, even if the issue was resolved in the arbitration portion of the case. However, the Adolph court stated there would be no re-litigation because the trial court would be bound by the outcome of the arbitration if confirmed – meaning if the plaintiff is determined to not be an aggrieved employee in the arbitration, then they would lack standing to proceed with the non-individual claims due to lack of standing, and vice versa. Uber also argued that, because bifurcating the PAGA claim would mean the plaintiff would no longer be seeking penalties for violations they suffered, the plaintiff could not satisfy their standing requirements. The court again disagreed, on the basis PAGA permits parts of a claim to be stayed pending resolution of the arbitration, not to mention such a result would run contrary to the statute’s purpose. The Adolph court also dismissed the idea that a PAGA plaintiff must have a financial stake in the case’s outcome. It is the plaintiff’s status as an aggrieved employee that confers statutory standing to bring a PAGA action, and that status is met on the date the complaint is filed. In other words, the plaintiff does not lose standing merely because a portion of their claims are subsequently sent to arbitration.
The Adolph decision does not change the fact the U.S. Supreme Court’s decision in Viking River is still binding precedent on all courts, including the California Supreme Court. Accordingly, California employers with enforceable arbitration agreements should be able to continue compelling individual PAGA claims to arbitration. However, the Adolph holding means employers should be aware that compelling arbitration will not mean the representative PAGA claims will be dismissed, but instead the representative claims will remain stayed in court pending resolution of the arbitration, and that arbitration’s result could be binding on the parties in the litigation.
Thus, California employers get some clarity… for now. In a state which is no stranger to plot twists, one must always consider the possibility of legislative changes to the PAGA statute – and new case law – in a post-Adolph world. After all, the show must go on, and it would not be PAGA without some drama!
If you need assistance reviewing arbitration agreements or have questions about recent precedent, please reach out to the NFC Attorney with whom you typically work, or call us at 619.292.0515.