The California Supreme Court in Adolph v. Uber Technologies, Inc. affirmed the key holding in the U.S. Supreme Court’s landmark decision in Viking River Cruises v. Moriana last year1—the FAA requires PAGA plaintiffs to arbitrate their “individual” claims based on Labor Code violations they alleged to have personally suffered. But the California Supreme Court diverged from Viking River Cruises in a significant respect, holding that plaintiffs have standing to pursue non-individual, representative PAGA claims on behalf of violations alleged to have been suffered by other, alleged aggrieved employees in court, evidently after arbitrating the individual PAGA claims.
Despite the outcome in Adolph, Viking River Cruises—even as interpreted by the California Supreme Court in Adolph—continues to provide a roadmap to mitigate against costly and disruptive PAGA actions. And the state of the law today regarding arbitration and PAGA is better than it was before Viking River Cruises.
Viking River Cruises—and Justice Sotomayor’s Concurrence—Set the Stage for Adolph v. Uber Technologies
California’s Labor and Workforce Development Agency (LWDA) is authorized to assess and collect civil penalties against employers for violations of certain provisions of the California Labor Code. The California legislature enacted PAGA, which took effect on January 1, 2004, to supplement the LWDA’s enforcement powers by deputizing an “aggrieved” employee—one who has purportedly had their Labor Code rights violated—to act on behalf the state of California to bring claims for violations of the California Labor Code on behalf of other alleged aggrieved employees. PAGA allows employees to collect civil penalties on behalf of themselves and others (25% of the collective penalties is distributed to alleged aggrieved employees and the other 75% is distributed to the LWDA).
Before Viking River Cruises, California law, including Iskanian v. CLS Transp. Los Angeles, LLC,2 precluded employers from enforcing pre-dispute arbitration agreements that divided arbitrable individual claims from nonarbitrable “representative” claims. But the U.S. Supreme Court transformed the PAGA landscape in California in Viking River Cruises, holding the FAA preempted this portion of Iskanian. While all PAGA actions are “representative” in the sense they must be brought by alleged aggrieved employees acting as agents of the state, PAGA claims based on violations an employee suffers is an individual claim. Therefore, Iskanian’s rule requiring an employer to choose between arbitrating all PAGA claims (individual and non-individual) or none of them conflicts with the FAA. In short, under Viking River Cruises, if a plaintiff is bound to arbitrate all of their individual claims, they must also arbitrate their individual PAGA claims.
As to the non-individual, representative PAGA claims based on Labor Code violations alleged to have been suffered by other alleged aggrieved employees, in Viking River Cruises, the Supreme Court held once an individual PAGA claim is compelled to arbitration, PAGA provides “no mechanism” to adjudicate the non-individual, representative PAGA claims. Therefore, the Supreme Court concluded a plaintiff whose individual claims were arbitrable lacked standing to assert claims on behalf of the alleged aggrieved employees in court, and the representative claims must be dismissed. Justice Sotomayor joined the Court’s majority opinion, but she wrote separately to clarify that the California legislature and California courts are “free” to modify the standing requirements under PAGA, but she also made clear such a change must be “within state and federal constitutional limits.”
Contrary to Viking River Cruises, the California Supreme Court Holds PAGA Permits Non-Individual Claims to Stay in Court
In Adolph, the plaintiff filed an amended complaint in California state court seeking PAGA penalties based on various alleged Labor Code violations. Before Viking River Cruises, the defendant moved for an order compelling arbitration under a signed arbitration agreement, which contained a provision compelling employment-related disputes to individual, bilateral arbitration, including under PAGA. The trial court denied the defendant’s motion, and the California Court of Appeal affirmed. Viking River Cruises confirmed that the plaintiff’s agreement to arbitrate his individual PAGA claims was enforceable, but the California Supreme Court agreed to hear and decide whether an alleged aggrieved employee who has been compelled to arbitrate individual PAGA claims maintains statutory standing to pursue non-individual PAGA claims in court.
Emphasizing that it “remains the final arbiter of what is state law,” the California Supreme Court noted that it was “not bound” by Viking River’s interpretation of PAGA standing, and disagreed with the U.S. Supreme Court, declaring that when a plaintiff brings a PAGA action, “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 [alleged] employees under PAGA.” Relying heavily on Kim v. Reins Int’l California, Inc.3 (a case the U.S. Supreme Court also relied on when deciding Viking River Cruises), the California Supreme Court stated the only requirements for standing under PAGA is: 1) the plaintiff is an employee; and 2) the employee “sustain[ed] a Labor Code violation committed by his or her employer.” That a PAGA plaintiff is compelled to arbitrate individual claims does not “nullify the fact of the violation or extinguish the plaintiff’s status as an aggrieved employee.”
The California Supreme Court also rejected any suggestion that PAGA required an “injury” to pursue claims for civil penalties in court on behalf of others. Rather, the “centerpiece of PAGA’s enforcement scheme” is the ability of a plaintiff to prosecute Labor Code violations committed by an employer against other alleged aggrieved employees, even if the violations suffered by the plaintiff “are only a fraction” of the violations committed by the employer. Again quoting Kim v. Reins, the California Supreme Court reiterated, “[e]mployees who were subjected to at least one unlawful practice have standing to serve as PAGA representatives even if they did not personally experience each and every alleged violation. (§ 2699(c).) This expansive approach to standing serves the state’s interest in vigorous enforcement.”4 The California Supreme Court went further, stating that “the promise of economic recovery” is not required for standing under PAGA, but rather, “it is 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.”5
Notably, the California Supreme Court did appear to place some limits on litigating representative claims in court when there are arbitrable individual PAGA claims, and in doing so, it tacitly set forth the pathway for litigating PAGA actions when individual PAGA claims are ordered to arbitration. The California Supreme Court stated if the arbitrator determines the plaintiff is not aggrieved, once that determination is reduced to a final judgment, the plaintiff “could no longer prosecute his non-individual claims due to lack of standing.” In other words, only once the arbitrator finds a PAGA plaintiff is an “aggrieved employee” may a case proceed on a representative basis in the trial court. This seems to indicate that if a plaintiff loses their individual PAGA claim in arbitration, they lose standing to pursue that claim in a representative capacity in court. Not only does this firmly reiterate Viking River Cruises’ holding, it should also preclude any attempt by a plaintiff from relitigating issues in court that have already been rejected by the arbitrator. And though the California Supreme Court did not state so explicitly, this reasoning reflects that the only way to effect Viking River Cruises’ holding is to stay any non-individual, representative claims pending the outcome of arbitration of individual PAGA claims.
Takeaways From the Decision
Adolph and Viking River Cruises nevertheless place employers in a better position than before these rulings when compelling arbitration of PAGA claims. The key takeaways from Adolph are as follows:
- Employers may continue to enforce and compel arbitration of individual PAGA claims under arbitration agreements governed by the FAA.
- Representative PAGA actions subject to an arbitration agreement should be subject to a stay in the trial court and should not proceed without first adjudicating the PAGA individual claim in arbitration.
- Arbitration agreements continue to serve as a tool against PAGA claims when drafting in accordance with the principles set forth in Viking River Cruises and Adolph.
- This decision does not impact well-settled law regarding non-PAGA cases that requires enforcement of class and collective action waivers in arbitration agreements.
- Employers should review their arbitration agreements to make sure the language regarding PAGA reflects the Viking River Cruises and Adolph decisions.
- Questions surrounding the exact parameters of the arbitration of PAGA claims will continue to be litigated for some time.
Footnotes
