Last year, we discussed the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana (“Viking River”), 596 U.S. [142 S.Ct. 1906] (2022), holding that an arbitration agreement between a plaintiff-employee and her employer required the arbitration of the employee’s individual claims brought under the Private Attorneys General Act (“PAGA”). In so doing, the Supreme Court foreclosed the employee’s ability to litigate non-individual PAGA claims. Viking River was considered a victory for employers, given that it appeared to close a loophole created by the California’s Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (Cal. 2014) (“Iskanian”). Iskanian had previously allowed employees to avoid the terms of their arbitration agreements and proceed with PAGA representative actions, seeking hefty fines from employers. Viking River seemingly foreclosed Iskanian’s permitted end run around employers’ arbitration agreements. But despite the ruling in Viking River, the question remained…”what should California courts do with an employee’s non-individual PAGA claims once the employee’s individual claim is forced into arbitration?”

The California Supreme Court’s recent decision in Adolph v. Uber Technologies, Inc. (“Adolph”) answered this yearlong question. The Court held that a plaintiff subject to a mandatory arbitration agreement does not lose standing to litigate non-individual PAGA claims, thereby reopening the potential risks for employers, but with some silver linings.

ADOLPH V. UBER TECHNOLOGIES, INC.

In Adolph, Plaintiff Erik Adolph—an Uber driver—was bound by the terms of an arbitration agreement that required him to arbitrate—on an individual basis—all work-related claims he had against his employer Uber. Adolph subsequently sued Uber, asserting various individual and class action claims arising from Uber’s alleged violations of the California Labor Code. Adolph subsequently amended his complaint to add a PAGA claim seeking civil penalties for the underlying Labor Code violations. The trial court granted Uber’s motion to compel arbitration, requiring Adolph to arbitrate all of his individual claims, and dismissed Adolph’s class action.

Adolph filed a second amended complaint, eliminating his individual and class action claims against Uber, proceeding only with the PAGA representative action. Adolph’s PAGA-only lawsuit survived Uber’s second motion to compel arbitration. Uber appealed the trial court’s decision and the California Court of Appeal upheld the trial court’s ruling that Adolph’s PAGA claims were not subject to arbitration, citing to Iskanian.

In May 2022,Uber requested the California Supreme Court review the Court of Appeal’s decision. Before the California Supreme Court had a chance to weigh in, the US Supreme Court handed down its decision in Viking River Cruises, holding that an employee subject to an arbitration agreement must arbitrate his or her individual PAGA claim, leaving the California Supreme Court to determine the fate of the non-individual PAGA claims after an employee is compelled to arbitrate his individual claims.

Last week, the California Supreme Court handed down its long-awaited decision in Adolph, holding that “an aggrieved employee who has been compelled to arbitrate claims under PAGA maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees.’”  The court stated that “where a plaintiff has brought a PAGA action comprising of individual and non-individual claims, 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.” So in short, employers can’t use an employee’s arbitration agreement to require the employee to abandon his or her PAGA representative action. 

But the Court’s decision included two positive takeaways:

1. The Court held that PAGA representative claims should be stayed pending arbitration of the plaintiff’s individual PAGA claim, saving employers from simultaneously fighting PAGA claims in two forums
2. Per the Court, if an arbitrator concludes a plaintiff was not an “aggrieved employee,” the plaintiff “could no longer prosecute his non-individual claims due to lack of standing.”  Meaning if the plaintiff’s individual PAGA claim is defeated, so, too, is the plaintiff’s ability to pursue the PAGA representative action on behalf of all “aggrieved employees.”TAKEAWAYS

Here are the key takeaways post Adoph:

1. Employers should continue to use arbitration agreements with PAGA waivers as a tool to compel arbitration of individual PAGA claims with the caveat that the arbitration provisions will not necessarily keep non-individual PAGA claims out of court.
2. Employers without arbitration agreements may consider entering into arbitration agreements requiring arbitration of PAGA claims as a first line of defense, providing a hurdle to plaintiff-employee’s ability to access courts to litigate non-individual PAGA claims, potentially limiting employers’ exposure to PAGA claims asserted by their employees on a representative basis.
3. Additionally, employers should review their employment agreements with counsel to see how the California Supreme Court’s decision may impact existing arbitration provisions. Moreover, employers might see an increase in PAGA litigation. Therefore, employers should review current policies and procedures to ensure they are consistent with current Labor Code requirements to mitigate risk and exposure to said claims.

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