Deviating from SCOTUS, California Supreme Court Has the Last Word on PAGA

Jaimee K. Wellerstein, Esq.,  Gmelich + Wellerstein, CALSAGA Legal Advisor

On July 17, 2023, the California Supreme Court issued its long-awaited ruling in Adolph v. Uber Technologies, Inc. (Supreme Court Case No. S274671), holding that a Private Attorneys General Act (PAGA) plaintiff retains standing to litigate representative PAGA claims in court after the plaintiff’s individual PAGA claims have been ordered to arbitration. In so holding, the California Supreme Court ignored guidance from the U.S. Supreme Court in Viking River Cruises v. Moriana.

Background

Plaintiff Erik Adolph worked as a food delivery driver for defendant Uber Technologies, Inc. (Uber). As a condition of his employment, Adolph was bound by the arbitration provision in the company’s technology services agreement. The arbitration provision required Adolph to arbitrate almost all work-related claims.

The agreement also stated: “[t]o the extent permitted by law, you and Company agree not to bring a representative action on behalf of others under the [PAGA] in any court or in arbitration. This waiver shall be referred to as the `PAGA Waiver.'” The agreement also included a severability clause: “If the PAGA Waiver is found to be unenforceable or unlawful for any reason, (1) the unenforceable provision shall be severed from this Arbitration Provision; (2) severance of the unenforceable provision shall have no impact whatsoever on the Arbitration Provision or the Parties’ attempts to arbitrate any remaining claims on an individual basis pursuant to the Arbitration Provision; and (3) any representative actions brought under the PAGA must be litigated in a civil court of competent jurisdiction. . . .”

In 2019, Adolph sued Uber, alleging individual and class claims for relief, claiming that Uber had misclassified him and other employees as independent contractors rather than employees and, as a result, wrongfully failed to reimburse them for necessary business expenses. Adolph later amended his complaint to add a claim for civil penalties under PAGA based on the same theory of misclassification. The trial court granted a motion by Uber to compel arbitration of Adolph’s individual claims and dismissed Adolph’s class action claims.

Adolph filed a second amended complaint, eliminating his individual and class claims and retaining only his PAGA claim for civil penalties. Uber filed a second motion to compel arbitration of Adolph’s independent contractor status and the enforceability of the arbitration agreement. The trial court denied the motion, and Uber appealed.

Both the trial court and the Court of Appeal ruled not only that PAGA claims are not subject to arbitration but that “PAGA waivers” are unenforceable. Uber appealed to the California Supreme Court, but in the meantime, the U.S. Supreme Court issued a ruling that seemed to help employers in the uphill battle.

In June 2022, in Viking River Cruises, Inc. v. Moriana, the U.S. Supreme Court held that PAGA actions could be split into individual and non-individual representative claims through arbitration agreement, but the claims could not be simultaneously arbitrated and litigated in courts. The U.S. Supreme Court held that PAGA permits a plaintiff to maintain non-individual PAGA claims only if they also maintain an individual claim in the same action. In the U.S. Supreme Court’s view, PAGA’s statutory scheme provides no mechanism for a court to adjudicate representative PAGA claims when the individual claim is relegated to a separate proceeding. Consequently, the U.S. Supreme Court determined that while plaintiff’s individual PAGA claim could be arbitrated, the non-individual claims must be dismissed for lack of statutory standing.

Though Viking River appeared to be a victory for employers, the issue of standing under PAGA remained unsettled. In fact, Justice Sotomayor noted in her concurrence that “if this Court’s understanding of state law” as to statutory standing “is wrong, California courts, in an appropriate case, will have the last word.” And now, they have.

The California Supreme Court’s Decision

The California Supreme Court’s ruling in Adolph departs from the U.S. Supreme Court’s ruling in Viking River. In Adolph, the Court stated unanimously and unequivocally that “where a plaintiff has filed a PAGA action comprised of individual and non-individual claims, an order compelling arbitration of individual claims does not strip the plaintiff of standing to litigate non-individual claims in court.”

In rejecting Uber’s arguments, the Court made clear that the outcome of a PAGA plaintiff’s individual arbitration will determine issues of standing for the non-individual claims. If a plaintiff prevails on their individual claims in arbitration (i.e., proves at least one individual Labor Code violation), the plaintiff retains standing to litigate the non-individual claims in court. If, however, the plaintiff does not prevail on their individual claims in arbitration (i.e., is unable to prove at least one individual Labor Code violation), then the plaintiff will lose the ability to pursue the non-individual PAGA claim in court as the individual would not be considered an “aggrieved employee” and would lose standing to proceed with the non-individual action.

Can Employers Still Hope to End PAGA?

Although not unexpected, this decision forces employers to look somewhere other than the judiciary for possible reprieve. The “California Fair Pay and Employer Accountability Act of 2024” is a proposed ballot measure which proposes to repeal PAGA and replace it with increased DLSE enforcement. It has qualified for the November 2024 general election.

Employer Takeaway

In light of this ruling, wage and hour compliance (e.g., overtime, timekeeping, pay, meal period and rest break policies, premium pay, etc.) is more important than ever. Employers should consider utilizing or revising arbitration agreements to specifically comply with the recent laws. Employers are advised to consult with counsel to review pending litigation to determine whether arbitration of individual claims to potentially deprive PAGA plaintiffs of standing to pursue non-individual PAGA claims is a viable option. If you have any questions about how this case may affect your business or need assistance preparing compliant policies or revising your practices, please contact your attorneys at Bradley, Gmelich + Wellerstein LLP. We are here to help.

Jaimee K. Wellerstein, Esq. is a Partner and the firm’s Employment Team Head. Representing employers in all aspects of employment law, Ms. Wellerstein collaborates with her clients to develop proactive business and legal strategies to try to avoid workplace conflict and employment disputes. She provides legal advice and counsel to numerous businesses, including conducting individualized training programs for both management and employees. Ms. Wellerstein performs internal audits of her clients’ employment practices to ensure compliance with the rapidly-changing world of employment laws, and guides investigations of employee allegations regarding harassment, discrimination, and employee misconduct. When litigation cannot be avoided, Jaimee K. Wellerstein aggressively defends her clients against employment law claims in the state and federal courts, as well as at administrative hearings, arbitrations, and mediations. Having defended numerous representative and individual lawsuits on behalf of her clients, Ms. Wellerstein is a skilled litigator and negotiator with a broad spectrum of experience upon which to draw. A frequent speaker on numerous topics, including employment law and contract law, Ms. Wellerstein regularly conducts training seminars and programs for managers and employees in all areas of employment practices and policies.

SCOTUS TO DECIDE THE FATE OF PAGA WAIVERS IN ARBITRATION AGREEMENTS IN CALIFORNIA

Martin P. Vigodnier, Esq. and Jaimee K. Wellerstein, Esq. Bradley, Gmelich & Wellerstein, CALSAGA Legal Advisor

In what could be a seminal ruling for California employers in the fight over out-of-control wage and hour litigation, the Supreme Court of the United States (“SCOTUS”) has recently granted certiorari in Viking River Cruise, Inc., v. Moriana to decide whether federal law permits employers and employees to agree to arbitrate claims individually and waive not just class and representative claims, but California Private Attorneys General Act (“PAGA”) claims, too.

PAGA Refresher

As a brief refresher, PAGA authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. Employees act as “private attorneys general.” Employees can pursue civil penalties as if they were a state agency. Each initial Labor Code violation carries a civil penalty of $100 per employee, per pay period. Subsequent violations are $200 per employee, per pay period. 75% of the penalties go to the State, and 25% of the penalties go to the aggrieved employees. These penalties add up very quickly and employers can face hundreds of thousands or even millions in penalties for technical errors or other unintentional violations!

Background of PAGA Waivers

In 2014, in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (2014), the California Supreme Court held that waivers of employees’ right to pursue PAGA actions are unenforceable as they violate California public policy. The California Supreme Court also stated that the FAA does not preempt California state law prohibiting PAGA waivers because a PAGA dispute is between the State and the employee, rather than between the employer and the employee.

Viking River Cruise, Inc. v. Moriana

In Viking River Cruise, Inc., v. Moriana, the plaintiff worked for Viking River as a sales representative. She sued under PAGA, alleging the employer violated several wage and hour laws under the California Labor Code. Viking River moved to compel arbitration in California state court. The trial court denied the company’s motion to compel and the Court of Appeal affirmed. The California Supreme Court denied Viking River’s petition for review.

Viking River petitioned for certiorari to the United States Supreme Court, arguing that the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), and Epic Systems Corp. v. Lewis, 138 S.Ct. 612 (2018) support the conclusion that the FAA preempts California law, and requires enforcement of arbitration agreements in PAGA actions. In those cases, the Supreme Court held that bilateral arbitration agreements must be enforced, including terms that prohibit class or collective arbitrations.

Employer Takeaway:

It is unclear why SCOTUS granted review at this time, but a favorable ruling would be monumental. In short, if SCOTUS rules in favor of Viking River, employers could expand waivers in employment arbitration agreements to include waiver of class and PAGA claims. A decision is expected from SCOTUS in the summer of 2022. Employers are therefore advised to consult with their employment counsel and consider updating their arbitration agreements, as necessary.

If you have questions about the impact this case will have on your business, or have any employment-related questions, please contact the attorneys at Bradley, Gmelich & Wellerstein LLP. We’re here to help.

Martin P. Vigodnier, Esq. is a Senior Associate in Bradley, Gmelich & Wellerstein LLP’s Employment Law Department. Martin focuses his practice on labor and employment litigation, class actions, and Private Attorney General Act (PAGA) actions, including wage and hour claims, discrimination, leaves of absence, reasonable accommodation, defamation, trade secrets, retaliation, harassment, wrongful termination, breach of contract, and fraud. Martin also drafts, in both English and Spanish, contracts, regulatory compliance materials, agreements, and policies such as anti-harassment, discrimination, and retaliation policies, OSHA safety policies, employee reimbursement policies, employee stock purchase plans, independent contractor agreements, arbitration agreements, settlement agreements, cross-purchase buy sell agreements, and employee handbooks.

Prior to joining the firm, Martin was President and Founder of his solo law practice handling various employment matters. Prior to practicing law, he was an extern for the Equal Employment Opportunity Commission (EEOC) and awarded the prestigious Peggy Browning Fellowship to work for the Federal Labor Relations Authority (FLRA), assisting the Office of General Counsel analyze unfair labor practice charges against government agencies.

Martin is a native Spanish speaker and writer, and a former amateur boxer.
mvigodnier@bgwlawyers.com

Jaimee K. Wellerstein, Esq. is a Partner at Bradley, Gmelich & Wellerstein LLP, and the Head of the firm’s Employment Department. Jaimee concentrates her practice in representing employers in all aspects of employment law, including defense of wage and hour class actions, PAGA claims, discrimination, retaliation, harassment, wrongful discharge, misclassification, and other employment related lawsuits. She also provides employment counseling and training in all of these areas.

Jaimee routinely represents employers in federal and state courts and in arbitration proceedings throughout the state, as well as at administrative proceedings before the Equal Employment Opportunity Commission, the California Department of Labor Standards Enforcement, the United States Department of Labor, and other federal and state agencies.

Jaimee assists as a Legal Advisor to CALSAGA, and is a member of ASIS International. She is rated AV-Preeminent by Martindale-Hubbell, the highest peer rating available. jwellerstein@bgwlawyers.com

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