Today, the California Supreme Court took a page from Justice Sotomayor's concurrence in Viking River Cruises v. Moriana by holding that an aggrieved employee does not lose standing to pursue "representative" PAGA claims on behalf of other employees merely because he or she must arbitrate his or her own PAGA claims. Relying on Kim v. Reins, the Court in Adolph v. Uber decided that because PAGA claims are brought in the name of the state, plaintiffs retain standing to maintain a PAGA claim on behalf of other employees even after their individual claims are compelled to arbitration.
When California's legislature enacted the Private Attorney General Act in 2004, its intent was to bolster the limited resources of the Department of Industrial Relations by empowering workers to prosecute violations of the state's Labor Code. Through individual and representative actions brought on behalf of the state, employees could make companies pay for wage and hour, safety, and other workplace violations.
Taking the position that PAGA claims are different from other types of employment litigation, California's courts had consistently held them exempt from compulsory arbitration. Notably, in the 2014 case Iskanian v. CLS Transportation Los Angeles, the California Supreme Court ruled that employers were precluded from enforcing pre-dispute arbitration agreements when the agreement foreclosed plaintiffs' ability to pursue PAGA penalties on behalf of other allegedly aggrieved employees. Although employees could waive their right to participate in a representative action by agreeing to individual arbitration, the court said that waivers of the right to bring a PAGA action on behalf of the state were unenforceable.
That all changed in June of 2022, when the U.S. Supreme Court handed down the Moriana decision. The justices ruled in that case that any plaintiff who has signed a valid agreement to arbitrate workplace grievances must also have individual PAGA claims resolved through arbitration. The court also stated that such a plaintiff thereafter lacks standing to pursue a representative PAGA action in state court, but it welcomed California's highest court to weigh in on this issue.
And California's Supreme Court did just that by agreeing last summer to hear the Adolph case. The Court ordered the parties to brief the following issue: "[w]hether an aggrieved employee who has been compelled to arbitrate claims under [PAGA] that are 'premised on Labor Code violations actually sustained by' the aggrieved employee ... maintains statutory standing to pursue 'PAGA claims arising out of events involving other employees.'"
The plaintiff in Adolph is an Uber Eats driver who alleges that Uber misclassified the employment status for himself and for a large group of similarly situated drivers. He contends that California law vests an aggrieved party who is forced to arbitrate his individual claim with standing to pursue a representative PAGA claim for the benefit of other employees.
Relying on legislative history and prior case law, the Court wrote that:
[A] worker becomes an 'aggrieved employee' with standing to litigate claims on behalf of fellow employees upon sustaining a Labor Code violation submitted by her or her employer. ... Arbitrating a PAGA plaintiff's individual claim does not nullify the fact of the violation or extinguish the plaintiff's status as an aggrieved employee, any more than the time-barring of remedies did in [Johnson v. Maxim Healthcare Services, Inc., a 2021 decision in which the Court of Appeals held that a plaintiff had standing to pursue her PAGA claim despite the fact that the plaintiff's individual claims were time-barred] or the settlement of the individual damages did in Kim.
The Court heard oral argument on May 9, 2023. The Court's questions centered on standing, the interplay of SCOTUS's interpretation of the Federal Arbitration Act with California's view of its own laws, and legislative intent.
If there is any good news for employers, it is that today's decision at least takes two of the worst-case scenarios off the table.
First, the Court held that if a plaintiff loses on the merits in individual arbitration—that is, the arbitrator finds the plaintiff is not an aggrieved employee—the arbitrator's finding could preclude the plaintiff from pursuing PAGA claims for other employees in court. Conflicting decisions from the Court of Appeals regarding the preclusive effect of an arbitration award in PAGA cases raised the specter of a plaintiff losing in individual arbitration, then pursuing a PAGA claim in court as if the arbitration never happened. The Supreme Court did not endorse such an outcome.
Second, the Court acknowledged that, except in unusual cases, a plaintiff's non-individual PAGA claims should be stayed pending the arbitration of their individual PAGA claims. Recent Court of Appeal decisions were mostly silent on whether a court action should be stayed when a PAGA plaintiff's individual claims are compelled to arbitration.
The Court remanded the case back to Superior Court with instructions to compel the case to arbitration on the question of whether Adolph is an aggrieved employee under PAGA.
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