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.
