On February 12, 2024, in Johnson v. Lowe’s Home Centers, LLC, the Ninth Circuit Court of Appeals held that an employee’s non-arbitrable, representative PAGA claims are not subject to dismissal when the plaintiff is ordered to arbitrate their individual PAGA claim. In doing so, the Ninth Circuit held that the federal courts must depart from the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, and must, instead, follow Adolph v. Uber. The Ninth Circuit recognized that the U.S. Supreme Court’s decision in Viking River was predicated on its understanding of state law and found that the California Supreme Court “corrected Viking River’s misunderstanding of PAGA” through its decision in Adolph. The Ninth Circuit also found “nothing in Adolph that is inconsistent with the federal law articulated in Viking River.”
Employers hoped the Ninth Circuit would confirm that a PAGA plaintiff who is arbitrating, or ordered to arbitrate, individual PAGA claims would lack standing to maintain a representative PAGA claim in court—i.e., that the representative PAGA claim would be dismissed. But, like California state courts, federal district courts will allow representative PAGA claims to remain in court, albeit stayed, while the plaintiff arbitrates their individual PAGA claims.
Judge Kenneth Lee’s concurrence discussed another unanswered question in PAGA jurisprudence: To what extent do arbitration rulings on individual PAGA claims have a preclusive effect on the larger representative PAGA claim?
Under the standing analysis in Adolph, “the California Supreme Court held that the arbitration decision of a low-stakes individual PAGA claim could have a preclusive effect—at least for the statutory standing issue of who is an ‘aggrieved employee’—on the high-stakes non-individual PAGA claim in federal court.” Judge Lee’s concurrence observed that preclusion of claims by following Adolph could undermine the benefits of arbitration. However, if the legal conclusions or factual findings from an individual PAGA arbitration award could potentially have a preclusive effect on the representative PAGA claim, companies may be faced with no alternative but to expend substantial time and resources defending low-stakes wage and hour claims for fear of a broader impact on representative PAGA claims.
Recognizing the potential unintended reach of Adolph, Judge Lee posits that an arbitrator’s findings on an individual PAGA claim likely will have no preclusive or practical effect on the broader representative PAGA claims. For example, in federal court, PAGA plaintiffs must still show Article III standing, which is a more rigid requirement than the lower bar required for PAGA standing in state court. Judge Lee also observed that issues decided in arbitration will probably have no preclusive effect because issue preclusion does not apply “‘if such application would not serve its underlying fundamental principles’ of promoting efficiency while ensuring fairness to the parties.” In other words, an arbitration ruling on a PAGA plaintiff’s individual claims likely has no preclusive effect because the employer “did not have an adequate opportunity or incentive to obtain a full and fair adjudication in the initial action.” This “full and fair opportunity to litigate” exception to issue preclusion is well-established in federal common law and applies to the PAGA framework outlined in Adolph because the individual PAGA arbitration poses a much smaller financial risk to defendants than the larger representative PAGA claim.
Johnson raises interesting tactical questions in PAGA claims that will factor into how companies approach litigating individual wage and hour claims in arbitration and the analysis whether to seek to enforce arbitration agreement in the face of a PAGA action. CDF will continue to monitor developments related to PAGA standing issues.
