The California Supreme Court issued its long-awaited PAGA decision yesterday in Adolph v. Uber Technologies, Inc., as the follow-up to the U.S. Supreme Court’s 2022 decision in Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. __, 142 S.Ct. 1906. In Viking River Cruises, the U.S. Supreme Court held that employees are required to arbitrate individualized claims brought under the Private Attorneys’ General Act of 2004 (PAGA) when subject to an employer’s arbitration agreement. The decision in Viking River Cruises, issued pursuant to the Federal Arbitration Act, left open the question of what happens to an employee’s non-individualized PAGA claims in a state court lawsuit when an employee is required to submit their individualized PAGA claims to arbitration. The U.S. Supreme Court invited the California Supreme Court to answer that question. The state Supreme Court did just that in yesterday’s decision in Adolph v. Uber Technologies, Inc., holding that the employee has standing to pursue non-individualized PAGA claims in state court while his or her own individualized PAGA claims are arbitrated.
As background, PAGA authorizes “an aggrieved employee,” to act as a proxy or agent of the state Labor and Workforce Development Agency, to bring a civil action against an employer “on behalf of himself or herself and other current or former employees” to recover civil penalties for Labor Code violations they have sustained. (Labor Code § 2699.) The question before the California Supreme Court in Adolph v. Uber Technologies, Inc. was whether an “aggrieved” employee, who has been compelled to arbitrate his or her individualized claims under PAGA, maintains statutory standing to pursue PAGA claims as a representative for other potentially “aggrieved” employees. The Supreme Court’s answer to that question was “yes.”
However, the Adolph decision includes language that was better than anticipated for employers who have mandatory arbitration agreements for their employees. While the California Supreme Court held that an employee does not lose standing to litigate non-individual PAGA claims in state court when the plaintiff’s individualized claims are subject to arbitration under the employer’s mandatory arbitration agreement, the Supreme Court approved, if not encouraged, trial courts to stay (e.g., temporarily stop or suspend) a plaintiff’s non-individualized PAGA claims while the plaintiff litigates his or her individualized PAGA claims in arbitration. In addition, the Supreme Court held that the arbitration decision is binding in the state court proceeding; thus, the plaintiff would lose “standing” to prosecute non-individualized (e.g., other employees’) PAGA claims in state court if the arbitrator found the employee was not an “aggrieved” employee on his or her individualized PAGA claims. (Adolph v. Uber Technologies, Inc. (July 17, 2023) __ P.3d ___ (2023 WL 4553702, at *7).)
A recent state court of appeal decision last year held just the opposite, concluding that an arbitration award in an employer’s favor and against the employee did not preclude the employee from litigating non-individualized PAGA claims as an “aggrieved” employee in state court. (See, Gavriiloglou v. Prime Healthcare Management, Inc. (2022) 83 CalApp.5th 595.) However, a subsequent case, Rocha v. U-Haul Co. of California (2023) 88 Cal.App.5th 65, disagreed with Gavriiloglou v. Prime Healthcare Management, Inc. In Rocha, the appellate court held that an arbitrator’s adjudication finding an employee’s allegations of Labor Code violations did not occur, will disqualify an employee’s standing as an “aggrieved” employee to pursue other employees’ PAGA claims in a state court action. In Adolph v. Uber, the California Supreme Court followed Rocha, not Gavriiloglou.
This should give employers the incentive to require mandatory arbitration agreements of their employees as a condition of employment. If sued under PAGA, an employer should immediately move to stay the PAGA lawsuit in state court pending the outcome of the arbitration. If the employer prevails against the employee on his or her individualized claims in the arbitration, the employer should then move to dismiss the PAGA lawsuit on the grounds that the employee does not have standing as an “aggrieved” employee to litigate a PAGA lawsuit in state court on behalf of other employees.
Californians will get the opportunity to make major changes to PAGA in next year’s November election. The ballot initiative is intended to significantly reduce the volume of PAGA lawsuits by eliminating the financial incentive to plaintiff’s lawyers who use PAGA to demand millions of dollars in each lawsuit from employers, by permitting only the Labor Commissioner to file a PAGA enforcement action. Workers would not be able to hire a private attorney to file and enforce PAGA if the ballot measure is approved. The initiative is strongly supported by the California Chamber of Commerce.
Questions
If you have any questions regarding this Legal Alert, please contact the following attorneys from our office or the attorney with whom you typically consult.
Bruce Scheidt
bscheidt@kmtg.com | 916.321.4502
David Tyra
dtyra@kmtg.com | 916.321.4594
Christopher Onstott
constott@kmtg.com | 916.321.4582
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