California Supreme Court Throws a Life Vest to Employees, But Also Orders Them an Uber to Arbitration

On July 17, 2023, the California Supreme Court, in Adolph v. Uber Technologies, Inc. , provided guidance regarding the handling of representative actions under PAGA where the plaintiff’s individual PAGA claims are compelled to arbitration.

Detour – What is PAGA?

In 2004, the California Legislature enacted the Private Attorney’s General Act (“PAGA”), authorizing “aggrieved” employees to file a lawsuit against an employer on behalf of themselves and other “aggrieved” employees for an employer’s Labor Code violations, and to collect civil penalties for those Labor Code violations on behalf of the Labor Commissioner.

Under PAGA, the employee is deputized to act as a proxy on behalf of the State to recover those civil penalties that belong to the State. ?PAGA is not designed to compensate an employee for actual losses or damages incurred.

An employee is “aggrieved” if they were employed by the alleged violator (the employer) and sustained one or more of the Labor Code violations being alleged against the employer.

What did the Court Decide?

Prior to the California Supreme Court’s decision in Adolph, and last year’s U.S. Supreme Court decision in Viking River Cruises, Inc. v. Moriana , California employers were categorically unable to compel any PAGA claim to arbitration.

The high court decided Viking River Cruises last year and, in a landmark decision for California employers, held that where a valid arbitration agreement exists between the employee and the employer, PAGA cases may be severed and the employee’s individual PAGA claims compelled to arbitration, with the remaining non-individual PAGA claims dismissed.

However, the concurring opinion in Viking River Cruises suggested that, “if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word,” opening the door to the concept that the remaining non-individual PAGA action may be stayed in civil court, and not dismissed, pending resolution of the individual arbitration proceeding.

Additionally, the California Supreme Court previously decided Kim v. Reins International California, Inc. , holding that an employee whose individual (non-PAGA) claims for damages were compelled to arbitration still maintained standing to pursue their PAGA claims in civil court. The Kim Court held that the plaintiff’s claims for damages is distinct from the civil penalties due for the Labor Code violations giving rise to the PAGA action, and a plaintiff’s resolution or settlement of their claim for damages does not strip them of their standing to pursue claims under PAGA.

Thus, begging the question:

Can an employee who is required to arbitrate their individual PAGA claims also act as the representative as to the non-individual PAGA claims in civil court following the resolution of the arbitration proceeding?

The California Supreme Court answered this question in Adolph in the affirmative:

Where a plaintiff has brought a PAGA action on behalf of themselves and other aggrieved employees, an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.

This is true even if the employee obtains redress for individual claims in arbitration.

Additionally, the Adolph Court confirmed that a trial court should stay the non-individual claims pending the outcome of the arbitration.

What does the Court’s decision in Adolph mean for Employers?

The Adolph decision highlights the ever-evolving nature of arbitrating employment claims, PAGA, and the employment law landscape in California. We encourage employers to take this opportunity to review their employment policies and practices, as well as arbitration agreements, with employment counsel, in order to stay informed and adapt to the legal developments, while ensuring compliance with the law.