On July 17, 2023, the California Supreme Court delivered its highly anticipated response to the United States Supreme Court decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), clarifying the effect of enforceable arbitration agreements on standing for California’s Private Attorneys General Act of 2004 (“PAGA”). The holding in Adolph v. Uber Technologies, Inc. carries widespread implications for California PAGA litigation and may raise more questions than it answers.

Background on PAGA

PAGA was enacted by the California Legislature in response to a need to better enforce the California Labor Code. PAGA allows an “aggrieved employee” to bring civil actions against their employers on behalf of the State of California to recover civil penalties for Labor Code violations. Employees have standing to bring a claim as an aggrieved employee if they have been employed by the employer and suffered at least one alleged Labor Code violation. PAGA actions are representative actions because the employees must sue on behalf themselves and other current and former employees injured by the employer. Uncertainty in PAGA litigation arises where the employee bringing the PAGA action signed an enforceable arbitration agreement: Can a PAGA action be compelled to arbitration?

Until Viking River Cruises, California’s answer to this question, the so called “Isankian Rule,” was that PAGA claims could not be compelled to arbitration via PAGA waivers contained in the agreement. In Iskanian, the California Supreme Court held that arbitration agreements containing PAGA waivers were unenforceable as against public policy because California has a strong vested interest in enforcing the Labor Code. Iskanian also determined that the Federal Arbitration Act (“FAA”) did not preempt the Iskanian Rule because the FAA focuses on private disputes and PAGA actions are not between private individuals. Rather, it is the State filing suit against the employer. Under Iskanian, PAGA litigation remained outside of arbitration.

However, Viking River Cruises revised the Iskanian Rule. There, the U.S. Supreme Court held the FAA preempts the Iskanian Rule to the extent that Iskanian held that a PAGA action cannot be split into separate actions for penalties on behalf of the individual bringing the PAGA action (the “individual claims”) and for penalties on behalf of all other employees who may have suffered violations of the Labor Code alleged (the “representative claims”). The U.S. Supreme Court ultimately held that the FAA applies to the aggrieved employee’s individual claim for penalties under PAGA, subjecting them to arbitration. Now, PAGA actions can be split into separate individual and representative claims.

The outcome of Viking River Cruises raised another issue: What happens to the representative claim once the individual claim is compelled to arbitration? The majority in Viking River Cruises held that the named individual whose claims were subject to arbitration would lose standing to maintain the representative claim once their individual claim was compelled to arbitration. Once the named individual employee loses standing, the correct course of action is to dismiss the remaining representative claim. However, Justice Sotomayor’s notes in her concurrence that procedural issues as to the representative claim is ultimately a question for California Courts to decide because standing under California law is not a federal question, signaling the need for a response. That is precisely what happened in Adolph v. Uber.

Adolph v. Uber

The California Supreme Court disagreed with the standing analysis in Viking River Cruises. Because the California Supreme Court is the final arbiter of its state law, it is not bound by the U.S. Supreme Court’s interpretation of California law. Accordingly, in Adolph v. Uber, California Supreme Court held that a named individual employee who files a representative action under PAGA, but has had their individual claim compelled to arbitration, nonetheless maintains standing to pursue the representative claim on behalf of other employees in state court. It reasoned that according to the language of the PAGA statute, standing to bring an action under PAGA only requires being employed by the employer and suffering a Labor Code violation. Arbitrating a PAGA plaintiff’s individual claim does not nullify the fact of the violation or extinguish the plaintiff’s status as an aggrieved employee.

The immediate impact of the holding in Adolph v. Uber is that employee plaintiffs are no longer in jeopardy of having their representative action dismissed should the individual claims of the named plaintiff be compelled to arbitration, so long as they are ultimately found to have been an aggrieved employee in arbitration.

Need for Clarity Following Adolph v. Uber

While the California Supreme Court may have made its stance of PAGA standing clear, it also left some PAGA related issues unaddressed.

Interestingly, the Court in Adolph supported its standing argument by citing to Johnson v. Maxim Healthcare Services, Inc. (2021) 66 Cal.App.5th 92.There, the claim for PAGA penalties suffered by the named plaintiff were time barred. Nevertheless, the California Court of Appeals found the fact that plaintiff’s individual claims for penalties were time barred did not strip the plaintiff of standing to pursue a representative claim so long as the named plaintiff had suffered an alleged violations while employed by the employer. The implications of this are unclear, but it appears to stand for the proposition that a PAGA plaintiff need not suffer an alleged violation inside the statute of limitations to maintain standing to pursue a representative action.

The holding in Adolph v. Uber also did not address if a PAGA action can proceed on behalf of the unnamed allegedly aggrieved employees when all of those employees entered into valid and binding arbitration agreements. If all employees signed an arbitration agreement, does that prohibit the named plaintiff from representing them? The answer remains unclear.

These are interesting issues that will have to be litigated in the near future. Until then, must wait and see what happens next.

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