In Adolph v. Uber Technologies Inc., the California Supreme Court held that it is not bound by the US Supreme Court’s interpretation of state law in Viking River Cruises v. Moriana, ruling that an order compelling arbitration of a plaintiff’s individual Private Attorneys General Act (PAGA) claims “does not strip the plaintiff of standing to litigate non-individual claims in court.” The US Supreme Court in Viking River had held that once compelled to individual arbitration, a plaintiff loses standing under the PAGA to pursue PAGA claims as to other employees in court.

PAGA AND VIKING RIVER

The legislature enacted PAGA in 2004 to allow employees to act as a proxy of the state Labor and Workforce Development Agency by bringing a civil action “on behalf of himself or herself and other current or former employees” to recover civil penalties for Labor Code violations. Previously, only the state could recover those penalties under its enforcement power.

In 2022, the US Supreme Court held in Viking River that the Federal Arbitration Act preempts the rule established by California courts that individual PAGA claims cannot be separated from non-individual claims and compelled to arbitration. As such, the Court held that a plaintiff’s individual PAGA claim must be compelled to arbitration if required by the arbitration agreement.

As for the remaining non-individual claims on behalf of other employees, the Court interpreted PAGA’s text to require that the plaintiff prosecute the civil action on his or her own behalf as well as that of the other employees. Therefore, the Court ruled that named plaintiffs have no standing to pursue non-individual PAGA claims in court after their own individual claims have been sent to arbitration. Based on this interpretation, the Court directed the California court to dismiss the remaining PAGA court action.

BACKGROUND OF ADOLPH

Erik Adolph was an independent contractor delivery driver for Uber Technologies who accepted a technology services agreement that included an arbitration provision with a class action waiver requiring arbitration of his individual claims. Adolph sued Uber in October 2019, alleging that the company had misclassified him and other drivers as independent contractors. The lawsuit was then narrowed to a PAGA representative action, and Adolph initially avoided arbitration under the California rule that was later found preempted in Viking River.

In May 2022, Uber sought review by the California Supreme Court of the appellate court’s refusal to enforce the arbitration agreement. After the US Supreme Court issued its ruling in Viking River the following month, the California Supreme Court promptly granted review so that it could rule on the issue of PAGA standing.

THE CALIFORNIA SUPREME COURT’S DECISION

In rejecting the US Supreme Court’s interpretation of PAGA standing, the California court cited to prior rulings that there are only two requirements for PAGA standing. The plaintiff must allege that he or she is (1) “someone ‘who was employed by the alleged violator’” and (2) someone “against whom one or more of the alleged violations was committed.” In the court’s view, “[s]tanding under PAGA is not affected by enforcement of an agreement to adjudicate a plaintiff’s individual claim in another forum,” and “only the fact of a violation is required to confer standing” to pursue a PAGA claim.

The court concluded that its approach to PAGA standing “not only follows from the statute’s text but also aligns with its purpose and legislative history.” That purpose, according to the court, “is the ability of a plaintiff employee to prosecute numerous Labor Code violations committed by an employer and to seek civil penalties corresponding to those violations”—a purpose that the court found would be thwarted by a narrow construction of standing under PAGA.

The court rejected several arguments made by Uber and various amici. As to the argument that a plaintiff would be improperly “permitted to relitigate whether he is an aggrieved employee in court to establish standing even if he has agreed to resolve that issue in arbitration,” the court concluded that these concerns could be avoided through a “manner of proceeding” proposed by Adolph.

The court agreed with Adolph that (1) the trial court could exercise its discretion to stay the non-individual claims pending the outcome of the arbitration; (2) the arbitrator’s award as to Adolph’s own claims, once confirmed, would be binding on the trial court; (3) if the arbitrator determines that Adolph personally suffered violations such that he is an aggrieved employee under PAGA, Adolph would continue to have PAGA standing in court; (4) if the arbitrator rejects Adolph’s claims and so finds he is not an aggrieved employee, “the court would give effect to that finding, and Adolph could no longer prosecute his non-individual claims due to lack of standing.”

These suggested scenarios provide some opportunities for employers with arbitration agreements requiring arbitration of individual PAGA claims. First, employers should be able to obtain a stay of the PAGA court action until the arbitration is concluded. Second, if they fully defeat the plaintiff in arbitration, they will be able seek dismissal of the court action due to the plaintiff’s lack of standing. In this regard, the Adolph opinion reaffirmed that PAGA standing requires that the plaintiff only suffer one Labor Code violation “to serve as PAGA representatives even if they did not personally experience each and every alleged violation.”

The court also rejected Uber’s argument that if plaintiff obtains an award of penalties in arbitration, the plaintiff loses standing as the claims in court because he or she has no financial stake in those claims. The court held that PAGA does not require a plaintiff to seek individual civil penalties in the same forum as the litigation seeking civil penalties as to non-individual PAGA claims. The court agreed with Adolph that “it is the plaintiff’s status as an aggrieved employee, not the redressability of any injury the plaintiff may have suffered, that determines the availability of PAGA standing.” The court also noted that because attorney’s fees and costs can be recovered under PAGA, a plaintiff “may have a personal stake in the litigation of non-individual claims.”

WHAT’S NEXT

As to the standing questions, the court directed any policy concerns about expansive PAGA standing to the legislature. In fact, California voters will get an opportunity to weigh in on PAGA in November 2024, as the proposed California Fair Pay and Employer Accountability Act (FPEAA) would repeal PAGA—thereby ending the ability of private organizations or attorneys to assist with Labor Code enforcement actions—alternatively proposing that California provide additional enforcement funding to the Labor Commissioner.

The court in Adolph also did not address the parties’ arguments on the proper interpretation of the arbitration agreement at issue, and allegations that a particular agreement is unconscionable or does not require arbitration of individual PAGA claims are likely to continue. Therefore, employers should carefully review their current arbitration agreements to maximize enforceability and consider the agreements’ application to PAGA claims following Adolph.

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