Practical Answers to Employment Law Issues
July 26, 2023 - PAGA

The California Supreme Court Clarifies PAGA Standing

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On July 17, the California Supreme Court issued its opinion in Adolph v. Uber Technologies, Inc. (S274671, Cal. Jul. 2023), holding that an employee who has been compelled to arbitrate claims under the Labor Code Private Attorneys General Act of 2004 (PAGA, Cal. Lab. Code § 2698, et seq.) that are “premised on Labor Code violations actually sustained by the [employee] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ in court.”

The Viking River Decision

The California Supreme Court’s decision in Adolph follows in the wake of Viking River Cruises, Inc. v. Moriana, where—as we previously reported—the United States Supreme Court held that the Federal Arbitration Act (FAA, 9 U.S.C. § 1, et seq.) preempted California law as set forth in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), to the extent it precluded the division of PAGA actions into arbitrable individual claims and nonarbitrable non‑individual claims. Under Viking River, an employee’s agreement to arbitrate their individual PAGA claims may be enforced. The Supreme Court in Viking River also concluded that where the employee’s individual PAGA claims were no longer pending in court, the employee no longer had standing to maintain the remaining “non-individual” representative PAGA claims, warranting their dismissal. After Viking River, many trial courts have entered orders compelling individual PAGA claims to arbitration, with some courts electing to dismiss the remaining non‑individual PAGA claims consistent with Viking River, and several others choosing to stay the claims pending the individual arbitrations.

Adolph: Procedural Background

Erik Adolph initially filed a putative class action against Uber Technologies, Inc. (Uber) in October 2019, alleging that he and other individuals were misclassified as independent contractors when they signed up to be delivery drivers on the “Uber Eats” app, and that Uber purportedly failed to reimburse them for business expenses. Adolph later amended the complaint to add a claim for civil penalties under PAGA for various alleged Labor Code violations.

As part of the Uber Eats sign-up process, Adolph signed an agreement that required him to resolve any disputes arising out of his contractual relationship with Uber in individual arbitration. The agreement contained class, collective, and representative (including PAGA) action waivers, with a severability clause requiring that if the PAGA waiver were to be found unenforceable, the representative PAGA claim must be stayed pending the outcome of any individual claims in arbitration.

Uber successfully moved to compel Adolph’s individual claims to arbitration, dismiss the class claims, and stay the PAGA claims pending arbitration. Adolph then dismissed his individual claims and retained only the claim for civil penalties under PAGA. Uber moved to compel arbitration of Adolph’s alleged individual status and his standing to pursue a PAGA claim. The trial court denied the motion, and the Court of Appeal affirmed, finding that Adolph’s PAGA claim could not be split into individual arbitrable and non‑individual, nonarbitrable components under Iskanian. Uber petitioned for California Supreme Court review. The United States Supreme Court issued its decision in Viking River while Uber’s petition was pending. The California Supreme Court granted review to provide guidance on PAGA standing.

Adolph: The California Supreme Court’s Decision

Adolph holds that an order compelling arbitration of an employee’s individual claims, including individual PAGA claims, does not strip the employee of standing to litigate non‑individual PAGA claims in court. In the Court’s view, its conclusion is consistent with the statutory text, PAGA’s purpose, and the legislative intent underlying PAGA. The Court noted that because the issue of PAGA standing was a matter of state law, it was not bound by the high court’s contrary interpretation in Viking River. Nor was the Court persuaded by several arguments explaining why a PAGA plaintiff loses standing to litigate non-individual claims in court when their individual PAGA claims are subject to arbitration.

The Court acknowledged that under Viking River, the FAA preempts the Iskanian rule against dividing PAGA actions into individual and non-individual components and requires enforcement of agreements to arbitrate a PAGA plaintiff’s individual claims. It reversed the Court of Appeal’s decision, denying Uber’s motion to compel arbitration of Adolph’s individual PAGA claims, and remanded the case for further proceedings.

Observations and Takeaways

Adolph offers some key takeaways for California employers.

  • Non-individual PAGA claims should be stayed pending the outcome of the individual arbitration. In rejecting the argument that allowing Adolph to retain standing to litigate non-individual PAGA claims would permit him to relitigate his “aggrieved” status, Adolph explained that the trial court may stay the non‑individual PAGA claims pending arbitration of the individual PAGA claims pursuant to California Code of Civil Procedure Section 1281.4. The Court viewed this as a practical solution to managing the potentially “piecemeal” nature of concurrent litigation in different forums.

  • A PAGA plaintiff who loses at arbitration lacks standing to pursue non-individual PAGA claims. Adolph acknowledges that if a PAGA plaintiff loses their individual arbitration and is found not to have suffered any Labor Code violation, the individual loses standing to prosecute the remaining non‑individual PAGA claims.

  • Adolph advises that arguments about abuses of PAGA are properly directed to the Legislature. The Court recognized the arguments by several amici curiae that it should narrow PAGA’s standing requirements to curb abuses of PAGA but advised that such arguments are best directed to the Legislature. Such efforts are underway: In addition to reform efforts directed at the Legislature, an initiative to repeal and replace PAGA, the California Fair Pay and Employer Accountability Act, has qualified for the November 2024 ballot.

  • The United States Supreme Court may eventually have the last word. The California Supreme Court’s decision in Adolph is in tension with Viking River, suggesting that at some point down the road, the PAGA standing issue may end up back in front of the United States Supreme Court.

We will continue to monitor these issues for further developments.