In a significant blow to employment-related arbitration agreements, the California Supreme Court ruled in Adolph v. Uber Technologies, Inc. that an employee has standing to bring non-individual, representative California Private Attorney General Act (PAGA) claims in court even when that employee’s individual PAGA claims are sent to arbitration.
PAGA permits current or former employees to bring a civil action to recover civil penalties for violations of California’s Labor Code, on behalf of themselves (an individual PAGA claim) and on behalf of other allegedly “aggrieved employees” who may have experienced similar violations (a non-individual PAGA claim). In a PAGA action, 75% of any recovered civil penalties are remitted to the state of California, and any aggrieved employees share in the remaining 25% of such penalties. The California Supreme Court has held that, despite being filed by private plaintiffs, PAGA claims are a “a type of qui tam action” that are putatively brought on behalf of the state of California as the real party in interest.
Employees have long used PAGA claims in California to attempt to circumvent agreements to arbitrate all claims arising from their employment on an individual basis. California courts traditionally have aided this arbitration workaround by holding that PAGA claims cannot be waived through a pre-dispute arbitration agreement and cannot be pursued on an individual basis, severed from the non-individual claims. Accordingly, California courts historically have held that an arbitration agreement that purports to require arbitration of PAGA claims on an individual basis is unenforceable.
Against this backdrop, California employers spent several years in the lower courts trying to vindicate their arbitration rights under the Federal Arbitration Act (FAA) when facing PAGA suits. Finally, in June 2022, the U.S. Supreme Court decided Viking River Cruises, Inc. v. Moriana, and in so doing, held that the FAA partially preempts California state law surrounding PAGA claims, and prohibits California from barring agreements to pursue PAGA claims on an individual basis. But the court also held that that the FAA allows California to decline to enforce agreements that attempt to categorically waive all representative actions, including PAGA actions entirely and non-individual PAGA claims. The practical consequence of Viking River was that when a PAGA plaintiff was subject to a valid arbitration agreement, the PAGA claim was to be split in two, with the plaintiff’s individual PAGA claim sent to arbitration, and the non-individual PAGA claim remaining in court.
However, the Supreme Court in Viking River noted a significant caveat as to the non-individual PAGA claim that remained in court. Interpreting California law, the Supreme Court held that the PAGA plaintiff would not have standing to maintain a non-individual PAGA claim in court independent of the individual PAGA claim. The court recognized, however, that the issue of standing is ultimately one of state law. And so, just weeks after Viking River was decided, the California Supreme Court granted review in Adolph to decide whether a non-individual PAGA claim can proceed in court independent of any individual PAGA claim seeking to redress the plaintiff’s individual concerns.
Adolph Provides Answers
In Adolph, the California Supreme Court answers the question left open by Viking River: Can a plaintiff bring a non-individual PAGA claim in court, separate from any individual PAGA claim that seeks to redress the alleged harm to the plaintiff? The California Supreme Court answered that question with a clear “yes.”
The plaintiff in Adolph was an UberEATS driver who entered into a pre-employment arbitration agreement with Uber, which contained a provision waiving all representative PAGA claims and providing that, if the PAGA waiver was unenforceable, the litigation of PAGA claims must be stayed pending the outcome of arbitrable individual claims. Adolph later sued Uber on a class and PAGA basis, claiming that Uber misclassified him and other similarly situated and aggrieved employees as independent contractors.
Uber moved to compel arbitration, and the trial court granted the motion as to Adolph’s individual claims, struck the class claims as waived and stayed litigation of the non-individual PAGA claim. Adolph then successfully amended his complaint to include only a PAGA claim and moved to preliminarily enjoin the arbitration from proceeding. The trial court granted both motions. The amended complaint contained only a single PAGA claim, which Uber again moved to compel to arbitration. The trial court denied that motion to compel arbitration and Uber appealed.
On appeal, the California Supreme Court started with the fact that a plaintiff who can bring an individual PAGA claim is an “aggrieved employee” under PAGA. That “aggrieved employee” status is what gives the plaintiff standing to assert non-individual PAGA claims. And, the court reasoned, the fact that a plaintiff must arbitrate an individual PAGA claim does not extinguish the plaintiff’s aggrieved-employee status for purposes of non-individual representative claims. As a result, and aligning with the court’s intentionally broad reading of the concept of PAGA standing, the court held that an order directing a plaintiff’s individual PAGA claims to arbitration does not strip the plaintiff of standing to litigate the non-individual PAGA claims in court.
Future Litigation After Adolph
Reading Viking River together with Adolph, arbitration agreements have a clear — but not entirely certain — impact on PAGA litigation. When it is determined that a PAGA plaintiff entered into a valid arbitration agreement and the employer seeks to vindicate those arbitration rights, the court should split the PAGA action into individual and non-individual claims. The individual PAGA claims should be sent to arbitration, while the non-individual PAGA claims would stay in court.
In moving forward, Adolph leaves open some doors for employers in deciding how to handle PAGA actions. The California Supreme Court recognized that PAGA plaintiffs may need to litigate in arbitration on the plaintiffs’ individual claims whether they are aggrieved employees, and that courts can stay non-individual PAGA claims pending the outcome of that issue. The California Supreme Court also intimated — but did not expressly decide — that an arbitral finding that an employee is not aggrieved on the employee’s individual PAGA claim, if confirmed by a court, would result in an inability to prosecute non-individual PAGA claims due to a lack of standing.
While Adolph has shielded representative PAGA claims from arbitration, it has effectively created a situation where a PAGA plaintiff may now be required to individually arbitrate his or her PAGA claim on the merits before being able to pursue claims on behalf of a larger group of employees. It remains to be seen how the plaintiffs’ bar will respond, but McGuireWoods anticipates an attempt to pivot toward bringing only non-individual PAGA claims without ever raising individual PAGA claims. In theory, this type of purely representative action should fail, since PAGA provides, and Adolph expressly confirms, that in order to have standing, the party bringing the action must be someone against whom one or more of the alleged violations was committed. But this issue was not decided in Adolph and may need to play out in the courts, along with other tactics plaintiffs may seek to employ.
Meanwhile, employers should consider reviewing and revising their current arbitration agreements to address these post-Adolph considerations and force frequent filers of PAGA letters and actions to stand behind their plaintiff in a merits-based arbitration prior to commencing representative PAGA litigation in state court.
If you have questions, concerns, or require assistance, please contact your legal counsel, or any of the authors of this article.