Seyfarth Synopsis: The California Supreme Court has held that a plaintiff whose individual PAGA claims are compelled to arbitration retains standing to pursue representative PAGA claims in court. Adolph v. Uber Technologies, Inc.

The Facts

Erik Adolph worked as a driver for Uber, delivering food to customers through the Uber Eats platform. In connection with his performance of services on the platform, Adolph executed an agreement to arbitrate on an individual basis only “almost all work-related claims he might have against Uber.”

With respect to PAGA claims, the agreement provided that Adolph would not “bring a representative action on behalf of others under [PAGA] in any court or in arbitration” (the “PAGA Waiver”). The agreement also contained a severability clause requiring enforcement of any lawful portion of the agreement (including the PAGA Waiver) regardless of the unenforceability of any other portion.

The Lower Court Decisions

Adolph initially sued Uber alleging individual and class claims arising out of his classification as an independent contractor. However, after the trial court granted Uber’s motion to compel arbitration of Adolph’s individual claims and dismissed the class claims, Adolph filed an amended complaint seeking only civil penalties under PAGA.

Uber filed a second motion to compel arbitration, arguing that Adolph was required to arbitrate his status as an allegedly aggrieved employee under PAGA. The trial court denied the motion and, in April 2022, the Court of Appeal affirmed on the grounds that PAGA claims were not subject to arbitration, and an agreement purporting to waive them was unenforceable.

The Intervening U.S. Supreme Court Decision

It had long been the rule in California that a PAGA claim could not be split into its individual and representative parts. Additionally, the right to bring a representative PAGA claim in court was unwaivable, thereby making otherwise enforceable arbitration agreements inapplicable to these claims.

In June 2022, the United States Supreme Court in Viking River v. Moriana considered California’s position on PAGA claims and rejected it—mostly. In a decision written by Justice Alito, the Court held that the Federal Arbitration Act preempted California’s rule preventing courts from dividing PAGA claims into their individual (arising from Labor Code violations allegedly suffered by the named plaintiff) and representative (arising from Labor Code violations allegedly suffered by someone else) component parts. PAGA claims could be so split and, correspondingly, an employee’s individual PAGA claims could be compelled to arbitration under an otherwise enforceable agreement. Without the individual claims, Justice Alito wrote, a PAGA plaintiff would lack standing to pursue representative claims, and those claims should, therefore, be dismissed.

Justice Sotomayor concurred with the majority opinion but highlighted the uncertainty that still lingered after the Court’s decision. She warned that the Court’s understanding of state law may be “wrong” as to the question of a plaintiff’s standing to pursue representative claims once the plaintiff’s individual claims are ordered to arbitration, and noted that, “in an appropriate case, [California courts] will have the last word.”

Accepting Justice Sotomayor’s invitation, the California Supreme Court granted review in Adolph a month later.

The California Supreme Court Decision

The California Supreme Court’s ruling in Adolph confirms its departure from Viking River. The Court held 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.” The Court relied heavily on the legislative purpose of PAGA in reaching its decision, as well as statutory language establishing (in the Court’s view) that a worker achieves PAGA standing “upon sustaining a Labor Code violation committed by his or her employer.”

In rejecting Uber’s arguments advocating for a contrary outcome, the Court resolved several other points concerning the litigation of PAGA actions. For example, the Court made clear that the outcome of a PAGA plaintiff’s individual arbitration will be binding on issues of standing to the favor of the prevailing party. If a plaintiff establishes one or more individual Labor Code violations in arbitration, the plaintiff then continues to have standing to litigate his or her non-individual claims in court. If, however, a plaintiff is unable to establish an individual Labor Code violation in arbitration, the plaintiff loses standing and can no longer pursue a representative PAGA claim in court. This position is consistent with the California Court of Appeal’s prior ruling in Rocha v. U-Haul.

Additionally, sending an employee’s individual PAGA claims to arbitration does not sever those claims from the employee’s representative claims in court. Rather, the PAGA claim remains a single, unitary action that should be subject to the mandatory stay provisions of California Civil Procedure Code section 1281.4.

What Adolph Means For Employers:

The decision is nuanced and leaves important questions unanswered. For example, the decision does not discuss the potential impact of a decision in arbitration that dismisses the “individual” PAGA claim without a finding that the plaintiff is an “aggrieved employee.” Nevertheless, the Adolph decision affirms that employers are not defenseless in litigating PAGA actions.

First, employers can defend against individual PAGA claims in arbitration with the assurance that, if they prevail, the plaintiff will be unable to pursue representative PAGA claims. This should allow employers the ability to demonstrate that the plaintiff is not an “aggrieved employee,” without having to face the burden and expense of responding to overbroad discovery requesting information as to every non-exempt employee. Furthermore, even if the individual defense in arbitration is unsuccessful, employers retain the ability to challenge a plaintiff’s representative claims on substantive or procedural (e.g., manageability) grounds, or both.

Second, as noted above, the Court specifically held that ordering an employee’s individual claims to arbitration does not sever a PAGA action. California Code of Civil Procedure section 1281.4 allows trial courts to use their discretion in issuing a stay only as to severable proceedings. Otherwise, a stay is mandatory. Thus, representative PAGA claims should be stayed pending the outcome of individual arbitration.

The fight over PAGA claims is far from over, with other important decisions still pending from the California Supreme Court and talk of proposed ballot measures that would make wholesale changes to the PAGA framework.