• In Adolph, the California Supreme Court holds that a plaintiff whose individual PAGA claim has been compelled to arbitration still has standing to pursue non-individual/representative PAGA claims on behalf of other employees in court.
• The court’s decision acknowledges that the U.S. Supreme Court’s decision in Viking River requires enforcement of agreements to arbitrate a plaintiff’s individual PAGA claim if the agreement is covered by the Federal Arbitration Act.
• In light of Adolph, employers should assess with their employment counsel whether their employee arbitration agreements need to be updated, or if they have not yet implemented such agreements, whether to now do so.

On July 17, the California Supreme Court issued its decision in Adolph v. Uber Technologies, Inc. (Cal. Sup. Ct. Case No. S274671), in which it addressed whether a plaintiff who is compelled to arbitrate their individual claim under the California Labor Code Private Attorneys General Act (PAGA) retains standing to pursue non-individual/representative PAGA claims in court. In what was widely anticipated would be its decision, the court held that “where a plaintiff has filed a PAGA action comprised of individual and non-individual claims, an order compelling arbitration of the individual claim does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.” As such, a PAGA plaintiff whose individual claim has been compelled to arbitration may still be able to pursue non-individual representative PAGA claims on behalf of other employees in court.

The U.S. Supreme Court’s Decision in ‘Viking River’

For years, California’s appellate courts and the U.S. Ninth Circuit Court of Appeals had held that an arbitration agreement that waives the right to bring representative actions under PAGA is unenforceable under California law (known as the Iskanian Rule). But employers consistently challenged the Iskanian Rule on the grounds that it was preempted by the Federal Arbitration Act (FAA).

Earlier this year, in Viking River Cruises, Inc. v. Moriana (Viking River), the U.S. Supreme Court held that while the FAA does not preempt the Iskanian Rule’s prohibition on wholesale waivers of PAGA claims entirely, the FAA does preempt the Iskanian Rule insofar as it attempts to preclude division of a PAGA action into individual and non-individual/representative claims through an agreement to arbitrate. Navigating through waters not yet charted by California’s Supreme Court, the U.S. Supreme Court further held that a plaintiff’s individual PAGA claim can be compelled to arbitration, and upon doing so, the “correct course [is] to dismiss” their remaining non-individual/representative PAGA claims because “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” In other words, the court held that a PAGA plaintiff lacks “statutory standing” under PAGA to litigate their “non-individual”/representative PAGA claims separately in court once their individual PAGA claim has been compelled to arbitration.

In a concurring opinion in Viking River, Justice Sotomayor invited the California Supreme Court to weigh in on the Viking River majority’s interpretation of PAGA’s standing requirements, noting that if the U.S. Supreme Court’s interpretation is wrong, then “California courts, in an appropriate case, will have the last word.” The Adolph decision now addresses that issue of state law.

A Brief Background on ‘Adolph v. Uber Technologies’

In Adolph, as a condition of his providing services as a delivery driver for Uber Technologies Inc., the plaintiff was required to accept Uber’s technology services agreement. Because he did not timely opt out of it, he became bound by the arbitration provision in that agreement, which barred him from bringing a representative action on behalf of others under PAGA in any court or in arbitration.

In his suit against Uber, the plaintiff ultimately alleged only a PAGA claim for civil penalties. In response, Uber filed a motion to compel arbitration of the plaintiff’s independent contractor status and the enforceability of the arbitration agreement. The trial court denied the motion. On appeal, the California Court of Appeal, citing the Iskanian Rule and its progeny, affirmed that ruling. Uber then filed a petition for review with the California Supreme Court.

While Uber’s petition for review was pending, the U.S. Supreme Court decided Viking River, and the California Supreme Court then granted Uber’s petition “to provide guidance on statutory standing under PAGA.”

The California Supreme Court’s PAGA Standing Decision in Light of ‘Viking River’

Notably, the California Supreme Court’s Adolph decision does not attempt to undermine or limit the holding in Viking River that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” Instead, it acknowledges – as it must – that “Viking River requires enforcement of agreements to arbitrate a PAGA plaintiff’s individual claims if the agreement is covered by the FAA.”

“Against this backdrop,” the California Supreme Court considered “whether an aggrieved employee who has been compelled to arbitrate individual [PAGA] claims ‘premised on Labor Code violations actually sustained by’ the plaintiff … maintains statutory standing to pursue non-individual ‘PAGA claims arising out of events involving other employees’ … in court.” It answered that question in the affirmative.

Relying almost entirely on its prior decision in Kim v. Reins International California, Inc., the Adolph court reasoned that “a worker becomes an ‘aggrieved employee’ with standing to litigate claims on behalf of fellow employees upon sustaining a Labor Code violation committed by his or her employer.” Because the court already held in Kim that “PAGA standing is not inextricably linked to the plaintiff’s own injury,” it further held in Adolph that “[a]rbitrating 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 settlement of individual damages claims did in Kim.” The court reasoned that “allowing post-violation events to strip an aggrieved employee of the ability to pursue a PAGA claim ‘would add an expiration element to the statutory definition of standing’” that is “inconsistent with [PAGA’s] statutory language.” Therefore, because “only the fact of a violation is required to confer standing,” a plaintiff’s representative “[s]tanding under PAGA is not affected by enforcement of an agreement to adjudicate [their] individual claim in another forum” – even if the plaintiff obtains redress for their individual claim in arbitration.

It also is worth noting the defendant’s arguments that the Adolph court summarily addressed and rejected as to why a plaintiff loses standing to litigate non-individual/representative PAGA claims in court when their individual PAGA claim is compelled to arbitration:

• The court found that there is no risk that a plaintiff could potentially relitigate the issue of whether they are an aggrieved employee in court even after that issue is resolved in arbitration as part of the adjudication of their individual PAGA claim, reasoning that such relitigating is barred by Viking River and that a court would be bound by the arbitrator’s findings in that regard.
• The court also found that no “severance” of a PAGA claim into separate and distinct actions, which would each require the plaintiff to separately establish standing in each, occurs when the individual and non-individual/representative components of a PAGA claim are bifurcated into arbitration and court proceedings. The court noted that the FAA and even California law contemplate piecemeal litigation of actions that include both arbitrable and non-arbitrable issues, and that the bifurcated issues remain part of one action, “parts of which may be stayed pending completion of arbitration.”
• Carefully avoiding a discussion of the language in one of PAGA’s civil action provisions, the court found that a plaintiff can still bring a non-individual/representative PAGA action on behalf of themself and other aggrieved employees upon being compelled to arbitrate their individual PAGA claim, reasoning that such standing is established merely by the filing of a representative PAGA action in the first instance. It noted that the individual PAGA claim compelled to arbitration remains part of the same lawsuit as the non-individual/representative PAGA claims that are litigated in court and that the plaintiff is pursuing “‘a single PAGA action … albeit across two fora.’”
• Finally, the court held that a PAGA plaintiff need not have a financial stake in the outcome of the case because it is the plaintiff’s status as an aggrieved employee, not the redressability of any injury that they may have suffered, that confers standing. Regardless, recognizing that an award of attorneys’ fees is a significant driver behind bringing a PAGA action, the court noted that “a PAGA plaintiff compelled to arbitrate individual claims may have a personal stake in the litigation of non-individual claims” given that the potential for an award of attorneys’ fees “may help plaintiffs secure representation by enticing attorneys to take cases they might not have if limited to recovering fees and costs for individual claims alone.”

What’s Next?

While the California Supreme Court has now held that PAGA standing allows a plaintiff to have one foot in a compelled individual arbitration and one foot in a non-individual/representative court action, it did not squarely address when the non-individual/representative PAGA claims should be litigated in court in relation to the individual arbitration proceedings. Notably, however, the court’s opinion does not suggest that non-individual/representative PAGA claims can or should be litigated concurrently. Indeed, the court seems to endorse the concept that representative PAGA claims should most likely be stayed under both the FAA and California law pending arbitration of a plaintiff’s individual PAGA claim.

Notwithstanding, because of the lack of a clear directive on that issue, employers can expect plaintiffs to argue that there should not be a stay and that non-individual/representative PAGA claims should be litigated in court concurrently with an individual PAGA claim that is compelled to arbitration in an effort to undermine the efficacy of PAGA representative action waivers. However, strong arguments exist under both the FAA and California law to successfully advocate that such a stay not only can but perhaps must be granted.

Another lingering issue left unresolved by Viking River, and that now comes more to the fore in light of Adolph, is how to handle the arbitrability of the individual PAGA claims of other aggrieved employees who have their own arbitration agreements with PAGA representative action waivers and become the subject of the representative PAGA claims to be litigated in court. As a corollary to the FAA preemption principles enunciated in Viking River, would allowing such employees to be the subject of representative PAGA claims litigated in court run afoul of and be preempted by the FAA? To that point, if those aggrieved employees’ arbitration agreements are not given effect – while the agreement of the named plaintiff who brought the action is – would that not, in the words of Viking River, result in the employer and those employees being “coerced into giving up a right they enjoy under the FAA” as to those employees’ individual PAGA claims?

Employers with employee arbitration agreements should immediately conduct a careful review of them with employment counsel to assess what, if any, updates should be made to them in light of Adolph. Additionally, employers that do not have employee arbitration agreements should evaluate with employment counsel whether Viking River and Adolph provide a strategic reason to implement such agreements.

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