In a head-spinning tale of battling court decisions and competing precedents, yet another important decision has hit the books on the question of standing under the Private Attorneys General Act of 2004 (PAGA). In Adolf v. Uber Techs., S274671 the court considered whether an aggrieved employee compelled to arbitrate induvial (July 17, 2023), claims under PAGA maintains standing to pursue PAGA claims arising out of events involving other employees. In an act of clear opposition to a recent U.S. Supreme finding on this topic, the California Supreme Court answered this question in the affirmative and found in favor of the plaintiff employee.
This decision comes as a blow to employers who were happy exercise the option to compel arbitration of individual PAGA claims and seek dismissal of non-individual claims after the U.S. Supreme Court's decision in Viking River Cruises, Inc. v. Moriana, 142 S.Ct.1906 (2022). Now this avenue of resolution is all but extinguished.
In Viking River, the Supreme Court held that employers in California could separate PAGA claims into individual and non-individual claims, and that employers could compel arbitration of the individual claims and the remaining non-individual claims could be dismissed for lack of standing. This flew in the face of the California precedent in place at the time and finally gave employers hope of resolving PAGA claims with improved cost and time efficiency.
Since Viking River, California courts have been at odds. Some, mostly on the federal level, followed the decision in Viking River. Others on the state level refused and stayed litigation of the non-individual claims pending the resolution of the individual claims in arbitration. Adolph v. Uber is an attempt by the California Supreme Court the settle the uncertainty once and for all.
Facts of the Current Case
Erik Adolph was a driver for Uber and performed food delivery through the Uber Eats platform. As part of his onboarding and a condition of employment, Adolph was required to accept the technology services agreement. He was also bound by the arbitration provision because he failed to timely opt out of it. The arbitration clause required Adolph to arbitrate "on an individual basis only" virtually all work-related claims that may arise against Uber.
The agreement included a specific clause addressing PAGA, It stated, "To the extent permitted by law, you and Company agree not to bring a representative action on behalf of others under PAGA in any court of arbitration, This waiver shall be referred to as the PAGA waiver." The agreement also contained a severability clause.
Adolph brought a claim against Uber in October 2019 in superior court alleging various violations of the Labor Code and Unfair Competition Law. Specifically, he claimed that Uber misclassified him and other delivery drivers as independent contractors instead of employees. He argued that this misclassification resulted in Uber's refusal to reimburse drivers for necessary business expenses. In February 2020, Adolph amended his complaint to include a claim for civil penalties under PAGA. The trial court granted Uber's motion to compel arbitration of Adolph's individual Labor Code violations and dismissed the class action claims.
With leave from the court, Adolph then filed a second amended complaint in which he eliminated all claims, but retained the PAGA claim. Adolph requested a preliminary injunction to prevent arbitration from moving forward and the court granted it. Uber filed a second motion to compel arbitration, but the court denied it. Uber filed separate appeals of the injunction and the denial of its second request to compel arbitration. The appeals were later consolidated and the court of appeal affirmed. It found that PAGA claims are not subject to arbitration and that an agreement that contains a waiver of PAGA claims is in violation of public policy.
After this result in the court of appeal, Uber filed a petition for review. Before Adolph had filed an answer, the Supreme Court decided the Viking River case, which overturned established case law in California. The Supreme Court of California granted review in this case to resolve the discrepancies regarding statutory standing under PAGA.
Requirements for Bringing a Claim Under PAGA
PAGA is codified in Lab. Code §2698 et seq. and was created to provide for new civil penalties for "Labor Code violations and to allow aggrieved employees, acting as private attorneys general, to recover those penalties." Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 379.
Standing: The plaintiff must be an aggrieved employee. The statute defines an aggrieved employee as," any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed," §2699, subd.(c)
Aggrieved employees become "deputized to prosecute Labor Code violations" once they have satisfied all notice requirements. Kim v. Reins, 9 Cal.5th 73 (Cal. 2020). The plaintiff must show:
- They were employed by the alleged violator’ ” and
- One or more Labor Code violations were committed against them. Id at 83-84. ‘
Notice: The aggrieved employee must provide notice to the employer and the Labor and Workforce Development Agency (LWDA) of the specific labor violations alleged, along with the facts and theories supporting the claim. "The notice requirement allows the relevant state agency to decide whether to allocate scarce resources to an investigation, or instead deputize the aggrieved employee to pursue sanctions on the state's behalf. Once deputized. the aggrieved employee has authority to seek any civil penalties that the state can." ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175, 185.
Legislative Purpose Underlying PAGA
The Legislature’s purpose in enacting PAGA was "to augment the limited enforcement capability of the [LWDA] by empowering employees to enforce the Labor Code as representatives of the agency.” Kim, supra, 9 Cal.5th at p. 86, quoting Iskanian, supra, 59 Cal.4th at p. 383. To this end, “the Legislature conferred fairly broad standing on all plaintiffs who were employed by the violator and subjected to at least one alleged violation.” Kim at p. 91. A narrower construction of PAGA standing would “thwart the Legislature’s clear intent to deputize employees to pursue sanctions on the state’s behalf.” Id.
Analysis: Does an aggrieved employee compelled to arbitrate individual claims maintain their statutory standing to litigate non-individual PAGA claims arising out of events involving other employees?
The Supreme Court in Viking held that a PAGA plaintiff who arbitrated individual claims would lose standing as to any remaining non-individual claims. "As we see it, PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action." Viking; Cal. Lab. Code Ann. §§2699(a), (c).
The California Supreme Court clearly stated its case for disagreement and found an independent basis to decline to apply the rule established in Viking. Since the highest court of each state "remains the final arbiter in what is state law" Montana v. Wyoming (2011) 562 U.S. 368, 378, the California Supreme Court stated that it "was not bound by the high court's interpretation of California law in Viking."
The California high court was clearly more persuaded by the precedent of Kim, 9 Cal,5th at 84-85 and Johnson, 66 Cal. App.5th at 930. Based on the guidance provided by these cases, the court reasoned that "Standing under PAGA is not affected by enforcement of an agreement to adjudicate a plaintiff's individual claim in another forum. Arbitrating a PAGA plaintiff's individual claim does not nullify the fact of the violation or extinguish the plaintiff's status as an aggrieved employee, any more than the time-barring of remedies did in Johnson, or the settlement of the individual damages claims in Kim."
Adolph's complaint clearly alleges that he suffered Labor Code violations while working as an Uber Eats driver. This is enough to establish his standing under PAGA. That coupled with the fact that the Legislature intended to "confer fairly broad standing on all plaintiffs employed by the violator" (Kim at p. 91) was persuasive to the court on this point.
Uber argued that unless Adolph's non-individual claims were dismissed, his PAGA action would contradict the finding in Viking River because the plaintiff would be permitted to relitigate whether he is an aggrieved employee in court to establish standing even if he has agreed to resolve that issue in arbitration as part of his individual PAGA claim.
Adolph contends that even if he is ordered to arbitrate his individual PAGA claims, the trial court could chose to stay the non-individual PAGA claims pending the resolution of his individual claims in arbitration pursuant to section 1281.4 of the Code of Civil Procedure. Adolph explained that his remaining PAGA action could proceed in the following way. First, the trial court may stay the non-individual claims pending the outcome of the arbitration pursuant to section 1281.4 of the Code of Civil Procedure. Following the arbitrator’s decision, either party could petition the court to confirm or vacate the arbitration award under section 1285 of the Code of Civil Procedure. If the arbitrator decides that Adolph is an aggrieved employee in the process of adjudicating his individual PAGA claim, that determination, if confirmed and reduced to a final judgment (Code Civ. Proc., § 1287.4), would be binding on the court, and Adolph would continue to have standing to litigate his nonindividual claims. If the arbitrator determines that Adolph is not an aggrieved employee and the court confirms that determination and reduces it to a final judgment, the court would give effect to that finding, and Adolph could no longer prosecute his non-individual claims due to lack of standing. Rocha v. U-Haul Co. of California (2023) 88 Cal.App.5th 65, 7682.
The court noted that Uber did not make any clear argument as to why Adolph's suggestion on his front was not palpable, or explain how it would be impractical or prejudice them in some way. It found that allowing the non-individual claims to move forward after a stay pending arbitration was a logical and feasible way for a trial court to handle the case.
Uber Argues that Bifurcating Individual and Nonindividual Claims Results in the Severing the Two Into Separate and Distinct Actions
Uber contended that by separating the individual claims as candidates for arbitration, the court essentially bifurcated the cases into two separate actions. Given that, it further argued that the remaining non-individual claims that a PAGA plaintiff had after arbitration no longer satisfied standing requirements.
The court squarely rejected this proposition. It stated, "When a case includes arbitrable and nonarbitrable issues, the issues may be adjudicated in different forums while remaining part of the same action." The Code of Civil Procedure section 1281.4 also makes it clear that a case may resolve some issues in arbitration while others are stayed pending the resolution of arbitration. "The statute makes it clear that the cause remains one action, parts of which may be stayed pending completion of arbitration," Cuevas v. Truline Copr. (2004), 118 Cal.App.4th 56, 61 [citing Code Civ. Proc., § 1281.4. Therefore, the court found that the arbitration of some issues does not necessarily sever the remaining issues into a separate case.
In addition, Uber's arguments on this front is in direct contradiction to the purpose of the statutory scheme of PAGA, It was written to allow a plaintiff employee to pursue both individual violation of the Labor Code as well as act on behalf of current and former coworkers. Under Uber's theory anytime "an aggrieved employee sighed a pre-dispute agreement to arbitrate individual claims, he or she would no longer be able to bring suit on behalf of himself or herself and other current or former employees. This is contrary to the purpose and clear meaning of the statute. Adolph is pursuing a single PAGA action and the requirement that a portion of his claim be settled by arbitration does not eliminate the other portions of the original suit, or necessarily separate them into a separate claim.
Must a PAGA Plaintiff Have a Financial Stake in the Case?
Uber's next argument involves the premise that a PAGA plaintiff who has resolved all individual claims via arbitration, no longer has a financial stake in the outcome of the non-individual claims, and therefore lacks standing. The court rejected this argument as well, finding that, " For purposes of standing, the statute does not require a PAGA plaintiff who has alleged one or more personally sustained violations to seek penalties for those violations in the same forum as the litigation of non-individual claims. It is the plaintiff's status as an aggrieved employee, not the redressability of any injury the plaintiff may have suffered, that determines the availability of PAGA standing." In addition, PAGA doe sallow for the payment of attorney fees and costs, PAGA plaintiff litigating non-individual claims may have a personal, financial stake in recoupling those costs.
Based on all of these findings the judgment of the court of appeals was reversed and remanded.
Key Takeaways:
- Trial courts may stay non-individual claims pending the outcome of the arbitration.
- If an arbitrator finds that the plaintiff is an "aggrieved employee" under PAGA, that finding can be binding on a trial court.
- If the plaintiff failed to show that they were an aggrieved employee, they may lose standing on any claims that were stayed in the trial court pending arbitration. This means that employers who prevail in arbitration, the plaintiff will not be able to pursue any representative PAGA claims.
- Parties would not need to relitigate whether a plaintiff was aggrieved as the arbiter's decision would stand.
- Arbitration of individual claims while permitting the non-individual claims to be stayed in court does not necessarily sever the case.