
19 Jul CALIFORNIA SUPREME COURT RULES EMPLOYEES HAVE STANDING TO BRING REPRESENTATIVE PAGA CLAIMS AFTER ARBITRATION OF THEIR INDIVIDUAL CLAIMS
In Adolph v. Uber Technologies, Inc. (July 17, 2023; Case No. S274671), a unanimous California Supreme Court ruled that an employee who has agreed to arbitrate his or her individual PAGA claim still has standing to bring a representative claim under PAGA on behalf of other “aggrieved employees” after arbitration. In so holding, the Supreme Court rejected Justice Alito’s interpretation of California law in Viking River Cruises v. Moriana (2022) 142 S.Ct. 1906 that employees who are compelled to arbitrate lack standing to bring a representative PAGA claim.
By way of background, California courts have long invalidated mandatory arbitration agreements that purport to require employees to arbitrate claims brought under the Private Attorneys General Act based on the decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348. Although arbitration agreements with “class action waivers” are generally enforceable under the Federal Arbitration Act, waivers of PAGA claims were held to be invalid as a matter of public policy. Iskanian and subsequent Court of Appeal cases uniformly held that PAGA claims cannot be split between individual and representative claims. Thus, claims brought under PAGA were not subject to arbitration.
In Viking River, SCOTUS held that the so-called Iskanian rule was preempted by the FAA insofar as it prohibits mandatory arbitration of employees’ individual PAGA claims. The U.S. Supreme Court held that the FAA preempted a state law rule that prohibited PAGA claims from being divided into individual and non-individual claims when the parties have agreed to arbitration. In the opinion authored by Justice Alito, the Court also noted that employees who are required to arbitrate their individual PAGA claim lack standing to bring a representative PAGA claim. In her concurring opinion, Justice Sotomayor observed that PAGA standing is a matter of state law, and that California courts or legislature should have the final word.
After Viking River, several California Court of Appeal decisions refused to follow Viking River on the question of PAGA standing. Rather, these cases held that employees who must arbitrate their individual PAGA claims still have standing to bring a representative claim as a matter of state law. Conversely, several federal district court decisions agreed with Viking River on standing and dismissed the representative PAGA claim after compelling arbitration of the individual claim. The California Supreme Court accepted review in Adolph v. Uber Technologies, Inc. to resolve the issue.
At the outset, the California Supreme Court noted it is not bound by SCOTUS’ interpretation of PAGA standing, which is solely a matter of state law. In analyzing PAGA standing de novo, the California Supreme Court held that a plaintiff must be an “aggrieved employee” to have PAGA standing. Citing its earlier decision in Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, an aggrieved employee is someone who was employed by the alleged violator, and experienced one or more of the alleged violations. Based on this definition, the Court held an employee is not stripped of PAGA standing as an aggrieved employee to pursue PAGA claims on behalf of other employees merely because they are required to arbitrate their individual claims. The Court found this interpretation also furthers the Legislature’s intent in enacting PAGA to augment enforcement of the Labor Code by “deputizing” aggrieved employees to prosecute employers’ violations.
The Court also noted that whether an employee is an aggrieved employee could be decided by the arbitrator. Trial courts could stay representative PAGA claims until the arbitration of the individual claim is completed. If the arbitrator rules that the employee suffered one or more Labor Code violations and is an aggrieved employee, that ruling will be binding, and the employee has standing to then pursue the representative PAGA claim in court. On the other hand, if the arbitrator rules that the employee did not suffer any Labor Code violations, the employee is not aggrieved and lacks standing to bring a representative PAGA claim.
It remains to be seen if Adolph is truly the final word on PAGA standing. Although the opinion purports to be grounded in California state law, it is expected that employers may try again to challenge the ruling as preempted by the FAA. However, for at least the foreseeable future, representative PAGA actions are alive and well. The big battle will now be in arbitration over the employee’s status as an aggrieved employee.