California employers’ short-lived victory in the U.S. Supreme Court’s decision in Viking River Cruises v. Moriana last June was substantially undone on Monday by the California Supreme Court’s decision in Adolph v. Uber Technologies, Inc.

As many California employers likely recall in June 2022, the U.S. Supreme Court held that under the Federal Arbitration Act, employers could require employees to arbitrate their individual claims for penalties under the California Private Attorneys’ General Act (PAGA). It further held that once an employee’s individual PAGA claims were sent to arbitration, there was no mechanism for the employee to maintain their non-individual PAGA claims in court. In effect, the U.S. Supreme Court’s decision allowed employers to require employees to pursue all their individual claims in arbitration and effectively waive their right to pursue PAGA penalties on behalf of other employees. The U.S. Supreme Court’s holding on employees’ ability to maintain non-individual PAGA claims was immediately challenged in the California courts, with the California Supreme Court granting a petition of review in Adolph v. Uber Technologies, Inc. in July 2022.

On Monday, July 17, 2023, the California Supreme Court’s issued its much-anticipated decision in Adolph and rejected the U.S. Supreme Court’s opinion regarding an employee’s ability to maintain non-individual PAGA claims. Specifically, the California Supreme Court held that an employee who has been compelled to arbitrate non-individual claims under PAGA maintains standing to pursue PAGA claims on behalf of other employees. In so holding, the California Supreme Court analyzed the standing requirements under PAGA, stating PAGA merely requires that the employee is an “aggrieved employee” meaning someone: (1) “who was employed by the alleged violator” and (2) “against whom one or more of the alleged violations was committed.” If an employee has standing to bring 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 employees.” 

After this decision, employers can still require, through an arbitration agreement, that employees litigate their individual PAGA claims in arbitration; however, the employees may still pursue PAGA penalties on behalf of other employees in court. The question then becomes: how does a case proceed when an employee is ordered to arbitrate their individual PAGA claims, but not their non-individual PAGA claims? The California Supreme Court touched on this issue in response to a procedure proposed by the plaintiff in Adolph and approved of a trial court exercising its discretion to stay the non-individual claims pending the outcome of the arbitration. This would allow the arbitrator to determine whether the individual employee suffered Labor Code violations, and if so, the proper damages and penalties awarded to the individual. Then, the trial court would determine whether, and to what extent, penalties should awarded based on Labor Code violations suffered by other employees. Of note, the California Supreme Court indicated that any determination by the arbitrator regarding whether or not the individual plaintiff suffered Labor Coder violations, and therefore was an “aggrieved employee”, would be binding on the state court hearing the non-individual claims. Hence, if the arbitrator finds that the employee did not suffer any Labor Code violations, and therefore, was not an aggrieved employee, such ruling should preclude the employee from pursuing PAGA penalties on behalf of others. Absent such finding, however, the employee would be able to pursue penalties on their own behalf in arbitration and on behalf of others in court.

The California Supreme Court’s recent decision is likely to wake up a number of PAGA cases that have been stayed or simply not litigated over the past year and require costly litigation, potentially in both arbitration and court.