On July 17, 2023, the California Supreme Court issued an opinion in Erik Adolph v. Uber Technologies, Inc., settling the issue of whether a Plaintiff’s non-individual PAGA claims must be dismissed if the Plaintiff’s individual PAGA claims are compelled to arbitration.
What is PAGA?
The Private Attorneys General Act of 2004, or PAGA, is a California statute, Cal. Lab. Code § 2698 et seq., which authorizes aggrieved employees to bring actions for civil penalties on behalf of themselves, other employees, and the State of California against their employers for California Labor Code violations. PAGA authorizes employees to file lawsuits to collect penalties for California Labor Code violations on behalf of the state’s Labor and Workforce Development Agency (LWDA) and other aggrieved employees. While PAGA claims often are compared to class actions, many of the rules and procedural protections governing class actions (such as the certification process) do not apply to PAGA actions.
Under PAGA lawsuits, any recovery of civil penalties for violations is divided between employees and the LWDA, with the government receiving 75% of recovered penalties.
This case stems from a 2019 suit by Uber Eats delivery driver, Erik Adolph. Adolph was a driver for the Uber Eats delivery platform. He filed a claim against Uber alleging that he was misclassified as an independent contractor instead of an employee. He included a claim under the PAGA, seeking civil penalties on behalf of himself and other drivers.
Uber moved to compel arbitration based on an arbitration agreement that required Adolph to individually arbitrate his claims against Uber. The request was denied, and Uber appealed. In April 2022, a state appeals court upheld a lower court’s denial of Uber’s arbitration bid. Thereafter, Uber filed a petition for review to the state justices, and the court agreed to hear the case in July 2022.
With Uber’s petition for review pending, in June 2022, the U.S. Supreme Court issued its decision in Viking River Cruises, Inc. v. Moriana. The Court in Viking held, in relevant part, that the Federal Arbitration Act (FAA) preempted California law to the extent California required the plaintiff’s individual PAGA claims to be adjudicated with the non-individual PAGA claims of the other alleged aggrieved employees. The Court concluded that a plaintiff’s individual PAGA claims should be submitted to individual arbitration, and the non-individual PAGA claims should remain to be dismissed since the plaintiff—in arbitration—would lack statutory standing to litigate the non-individual claims.
However, because PAGA is a matter of state, and not federal law, the U.S. Supreme Court kicked it back to California to resolve the state issue.
On July 17, 2023, the California Supreme Court in Adolph held that an order requiring an employee to arbitrate PAGA claims brought on his or her own behalf does not, on its own, deprive the employee of standing to litigate non-individual PAGA claims on behalf of other employees.
For PAGA standing, a plaintiff must be an “aggrieved employee,” and “against whom one or more of the alleged violations was committed,” Justice Goodwin Liu wrote in the opinion for the State’s high court, citing the court’s 2020 decision in Kim v. Reins International California Inc. An order sending the individual claims to arbitration does not undo the “aggrieved employee” status, he wrote.
In other words, a plaintiff has statutory standing to litigate non-individual PAGA claims if the employee (1) “was employed by the alleged violator” and (2) is someone “against whom one or more of the alleged violations was committed.” A plaintiff who satisfies both requirements does not lose standing based on the employee’s individual claims being compelled into arbitration. The Court reached this conclusion in part because of its determination that the plaintiff’s case remains a single action even if the individual and non-individual PAGA claims are split and pursued in different forums under Viking.
The Court suggested that trial courts should stay non-individual PAGA claims pending arbitration of the individual PAGA claim, and that named plaintiffs would lose standing if they are unsuccessful in arbitration.
Uber may appeal the decision to the U.S. Supreme Court.
California employers should continue to have good policies and practices in place to help defeat any potential PAGA representative actions through well-drafted employee policies and arbitration agreements.
Dykema attorneys will continue to monitor developments related to PAGA and/or the Adolph decision. If you have any questions about how this ruling affects your business, please contact the author of this article or any member of Dykema’s Labor and Employment team.