In June 2022, we reported on the Viking River case, in which the U.S. Supreme Court addressed the question of whether claims brought under the California Private Attorney General Act (PAGA) could be compelled to arbitration on an individual basis. As many California employers are aware, PAGA allows employees to bring claims on behalf of the state to recover civil penalties for violations of the California Labor Code. In a successful PAGA action, the California Labor and Workforce Development Agency is entitled to 75% of the recovered penalties, and the remaining 25% goes to the “aggrieved employees.”

In its Viking River opinion, the Court issued a complicated ruling. In essence, the Court held that employees could be compelled to arbitrate their “individual” PAGA claims in arbitration, and, once that happened, the employee would no longer have standing to pursue a collective PAGA action in court. This pro-employer holding meant, for all intents and purposes, that California employers could enforce “PAGA waivers” in arbitration agreements, just like California employers are able to enforce class action waivers in arbitration agreements.

However, in a concurring opinion at the time, Justice Sotomayor instructed that the question of whether an individual who is compelled to arbitrate a PAGA claim has standing (or the legal ability) to pursue a collective PAGA action in such cases is a matter of state law. This concurrence was widely understood as an invitation to California courts to further opine on the issue. 

Shortly thereafter, the California Supreme Court granted review of this very issue in the case of Adolph v. Uber Technologies, Inc. While the case was pending, five California appellate courts issued opinions holding that employees maintain standing to pursue collective PAGA claims, despite the existence of an arbitration agreement compelling arbitration of such claims on an individual basis. On Monday, July 17, 2023, the California Supreme Court issued its opinion in the Adolf v. Uber case [], and that opinion is in concert with those decisions. 

In its ruling, the California Court held that an employee who is compelled to arbitrate his individual PAGA claims in arbitration does not lose standing to separately pursue collective PAGA claims in court. The Court did acknowledge that an employee would be required to arbitrate the individual PAGA claim first, during which time the collective PAGA court proceedings likely would be stayed. The Court also noted that if the arbitrator rules that the employee did not suffer any Labor Code violations (and therefore is not an “aggrieved employee” in PAGA parlance), and that award is confirmed in court, the court should give effect to that finding, and the employee would then lose standing to pursue the collective PAGA claims in court. 

The key takeaways for employers are as follows:

• Employers cannot avoid collective PAGA litigation with arbitration agreements. 
• Employers have two general options with respect to arbitration agreements and PAGA claims:
  • One, to simply exclude PAGA claims as non-arbitrable claims, which would thereby keep PAGA claims in a single proceeding in court.
  • Two, to require arbitration of the individual PAGA claim. This option has the benefit of placing the entire issue of standing in the hands of the arbitrator, rather than a judge, since it would be the arbitrator who decides whether the employee personally suffered one or more Labor Code violations. However, the risk is that the employer must litigate the same issue twice (once in arbitration on an individual basis and again in court on a collective basis). 
• Employers should work with employment counsel to review and revise arbitration agreements in light of the Court’s decision.
• Employers should also expect to see an increase in PAGA litigation and should work with counsel on reviewing existing wage-and-hour policies and practices to ensure compliance and minimize risk of exposure. 

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