In coming to this decision, the court focused on the legislative intent behind the enactment of PAGA.

On July 17, 2023, the California Supreme Court unanimously turned one part of the Supreme Court of the United States’ decision in Viking River Cruise on its head. In the matter of Erik Adolph v. Uber Technologies, Inc., the court held that where a plaintiff has brought a Labor Code Private Attorneys General Act (PAGA) action comprised of individual and nonindividual (i.e., representative) claims, “an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims under PAGA on behalf of other employees.”

Factual and Procedural Background

Erik Adolph was an Uber Eats delivery driver. As a condition of employment, Adolph agreed to arbitrate, on an individual basis only, “almost all work-related claims he might have against Uber.” When it came to PAGA actions, the agreement included a “PAGA waiver” and a severability clause, which respectively: (1) prohibited Adolph from bringing a “representative action on behalf of others under the [PAGA] in any court or in arbitration,” and (2) required enforcement of any lawful portion of the agreement irrespective of the unenforceability of any other part.

In October 2019, Adolph sued Uber in court, alleging individual and class claims asserting that Uber misclassified him and other delivery drivers as independent contractors and that Uber failed to reimburse them for necessary business expenses. A few months later, Adolph amended his complaint to add claims for civil penalties under PAGA based on the same theory of misclassification. However, the trial court granted Uber’s motion to compel arbitration of Adolph’s individual claims and dismissed his class claims. Adolph then filed his second amended complaint, eliminating all but his PAGA claims, and requested a preliminary injunction to prevent arbitration from proceeding, which the trial court granted.

After filing a second motion to compel arbitration, which was denied, Uber then appealed the injunction and the denial of the second motion to compel. The Court of Appeal for the Fourth Appellate District (Orange County) affirmed the trial court’s ruling and held that the PAGA claims were not subject to arbitration and that an agreement waiving the right to bring a claim on behalf of other employees under PAGA violates public policy and is unenforceable.

Uber filed a petition for review. One month later, the U.S. Supreme Court released its decision in Viking River Cruises, Inc. v. Moriana.

The Great Shake-Up: Viking River Cruises

In its 2022 decision, the U.S. Supreme Court rejected the longstanding view that individual and representative PAGA claims could not be “split” and had to be adjudicated in a single proceeding. Justice Samuel Alito explained in his decision that an anti-splitting rule “unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate,’… and does so in a way that violates the fundamental principle that ‘arbitration is a matter of consent.’” However, the U.S. Supreme Court went one step further, holding that once an employee’s individual PAGA claims are compelled to arbitration, the employee loses standing to continue representing other “aggrieved employees” as to their PAGA claims.

Justice Sonia Sotomayor, however, hinted in her concurring opinion that if the U.S. Supreme Court’s understanding of state law was incorrect, California courts would have the last word and could modify the standing requirements under PAGA.

The California Supreme Court Utters the “Last Word”

The California Supreme Court in Adolph held that where a plaintiff has filed a PAGA action comprised of individual and nonindividual claims, “an order compelling arbitration of individual claims does not strip the plaintiff of standing to litigate non-individual claims in court.” In short, a plaintiff may be required to adjudicate their own PAGA claims in arbitration, but still may proceed in a representative action in court, seeking redress for other aggrieved employees in alleged PAGA violations.

In coming to this decision, the court focused on the legislative intent behind the enactment of PAGA. Specifically, PAGA was enacted to “augment the limited enforcement capability of the [Labor and Workforce Development Agency] by empowering employees [by giving them broad standing] to enforce the Labor Code as representatives of the Agency.” All that is needed for a worker to become an “aggrieved employee” with standing to litigate claims on behalf of their fellow employees is for them to sustain a Labor Code violation committed by their employer. Requiring a plaintiff to arbitrate their own individual PAGA claims does not affect their standing to represent other employees in a representative PAGA action because arbitration of the individual claims “does not nullify the fact of the violation or extinguish the plaintiff’s status as an aggrieved employee.” Any different interpretation would effectively “narrow… the construction of PAGA standing.”

The court went on to provide further guidance on litigating PAGA actions. One pertinent point the court made is that while awaiting the outcome of the arbitration of the plaintiff’s individual claims, the trial court may exercise discretion to stay the nonindividual claims. Once a decision is reached by the arbitrator, whether or not the plaintiff has standing to continue litigating the nonindividual claims will depend on whether the arbitrator determined if the plaintiff is an aggrieved employee. If the arbitrator determines that the plaintiff is an aggrieved employee, and the court confirms, that determination would be binding on the court, and the plaintiff would have standing to litigate their nonindividual claims. If the arbitrator determines that the plaintiff is not an aggrieved employee, and the court confirms, the plaintiff would no longer have the right prosecute the representative PAGA claims due to lack of standing.

What Does This Mean for Employers?

The Adolph decision is disappointing insofar as the court did not align with the U.S. Supreme Court’s opinion in Viking River Cruises. Trial courts already have the discretion to stay nonindividual claims while a PAGA plaintiff’s individual claims are arbitrated. (This assumes, of course, that the plaintiff has an arbitration agreement with the employer.) Employers who have arbitration agreements with employees should immediately seek to enforce those arbitration agreements (either by stipulation or motion) for plaintiff’s individual PAGA claims, and should seek a stipulation or order staying the representative PAGA claims while arbitration is pending. Employers should also consider updating their arbitration agreements to include a provision by which the employee agrees that any nonindividual PAGA claims shall be stayed pending the outcome of the employee’s individual claims in arbitration.

For More Information

If you have any questions about this Alert, please contact Jennifer A. Kearns, Poline Pourmorady, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.