The California Supreme Court recently issued its highly anticipated decision in Adolph v. Uber and answered the key question of whether the California courts would follow the U.S. Supreme Court’s ruling in Viking River. The California Supreme Court’s answer was a resounding “NO.” Now, after Adolph v. Uber, an employee whose individual PAGA claims are sent to arbitration (as a result of signing the employer’s arbitration agreement) still has the right to pursue his representative PAGA claims in court.
This decision from the California Supreme Court effectively erases the victory that employers enjoyed following the U.S. Supreme Court’s decision in Viking River, which we blogged about here.
A PAGA Refresher
PAGA was enacted in 2004 to authorize employees to file lawsuits against employers for Labor Code violations they endured (the employee’s individual PAGA claims) as well as for the violations endured by all other employees (the employee’s representative PAGA claims). You can read a more detailed summary of PAGA, from our website, here.
The policy behind PAGA seemed a noble one: California lacked the resources to meaningfully police and enforce the State’s various labor laws, so the Legislature passed the PAGA law to allow individual employees to do the monitoring and policing themselves. In exchange for the employee and their attorney doing that work, the State would (a) give 25% of the penalties recovered to the employee, and (b) order the offending employer to pay the employee’s attorneys’ fees.
The U.S. Supreme Ruling in Viking River
In Viking River, which we blogged about here, the U.S. Supreme Court held that an employee can be required to submit their individual PAGA claim to arbitration because the Federal Arbitration Act (“FAA”) preempted California law prohibiting the arbitration of individual PAGA claims.
Importantly, however, the Court ruled that the FAA did not preempt the rest of California PAGA law. Therefore, the Court left undisturbed the rule from Iskanian v. CLS Transportation that prohibited the arbitration of an employee’s non-individual, representative PAGA claims. Those representative PAGA could not be forced to arbitration, the Court acknowledged in Viking River. But those surviving representative PAGA claims that remained in court had to be dismissed, the Court ruled, because the employee no longer had standing to prosecute those claims once the employee’s individual PAGA claims had been sent to arbitration.
Employers across California rejoiced once the U.S. Supreme Court announced this decision. Now, they had a roadmap for dealing with disruptive, costly PAGA claims. First, employers would have employees sign new arbitration agreements requiring employees to arbitrate their individual PAGA claims. Then, if the event an employee brought a future PAGA claim, the employer would move the Court to order the individual portion of the PAGA claim to arbitration and then to dismiss the remaining representative portion. This spared employers from ever having to deal with the representative portion of an employee’s PAGA claim, which is the always the bigger, more costly portion of a PAGA claim.
But this celebration was short-lived. As Justice Sotomayor observed in her Viking River concurrence, California courts ultimately had the “last word” on California law to the extent that it was not preempted by the FAA. And it was the secondary holding of Viking River – that the surviving representative PAGA claims must be dismissed once the employee’s individual PAGA claim is sent to arbitration – that was not preempted by the FAA. Thus, California courts would have the right to decide for themselves if California law compelled this same result – or not.
In the year since Viking River, many lower courts in California have indeed followed Justice Sotomayor’s lead and refused to follow that part of Viking River that required the dismissal of the employee’s representative PAGA claim once their individual PAGA claim was sent to arbitration. We blogged here about lower courts in California refusing to follow Viking River.
This jarring conflict between the U.S. Supreme Court and California’s lower courts compelled the California Supreme Court to step in and to decide the issue once-and-for-all.
The California Supreme Court’s Response in Adolph v. Uber
In Adolph v. Uber, the California Supreme Court reiterated Justice Sotomayor’s point and emphasized that it “remains the final arbiter” of California law. And, according to the California Supreme Court, California law allows an employee to maintain their right to prosecute their representative PAGA claims in court even after their individual PAGA claims have been sent to arbitration. In other words, the California Supreme Court ruled that California law compelled the exact opposite outcome from what the U.S. Supreme Court mandated in Viking River.
In reaching their decision in Adolph v. Uber, the California Supreme Court at least provided employers with a roadmap for how to litigate employee PAGA cases going forward:
Step #1: Employers who utilize arbitration agreements should move to enforce that agreement and ask the court to send the employee’s individual PAGA claims to arbitration.
Step #2: As for the employee’s surviving representative PAGA claims which remain alive in court, Employers should ask the court to stay those court proceedings, pursuant to California Code of Civil Procedure §1281.4, until the arbitrator reaches a decision on the employee’s individual claims.
Step #3: If the arbitrator rules in favor of the employer in the arbitration – by finding that the employee is not an “aggrieved employee” under PAGA and, thus, has no claim – then the employer should move to confirm the arbitrator’s ruling under California Code of Civil Procedure §1285 and reduce it to a final judgment.
Step #4: Once the arbitrator’s ruling is reduced to a judgment, the employer should move the court to dismiss the surviving representative claims because, under PAGA’s plain language, an employee who is not an aggrieved employee has no standing to bring any PAGA claim.
What Employers Should Do Now
As a result of Adolph v. Uber, all California employers should review their current arbitration agreements with counsel. Outdated arbitration agreements should be updated to include the correct language from Adolph v. Uber so that employers can take advantage of the new roadmap:
— Employers should consider adding explicit language to their arbitration agreements requiring employees to arbitrate their individual PAGA claims.
— Employers should also consider adding language requiring the court to stay any non-individual, representative PAGA claims that remain until the separate arbitration action has concluded.
— Employers should make sure that their arbitration agreements force employees to waive their rights to bring class and collective actions. The right to bring these costly actions can still be waived in arbitration agreements, even after Adolph v. Uber.
— And, finally, employers should continue to monitor this blog because PAGA law is always evolving. California courts issue key PAGA decisions all the time, and each of those decisions has the ability to change PAGA law yet again. In addition, in November 2024, California voters will consider the California Fair Pay and Employer Accountability Act at the ballot box. If voters pass this initiative, PAGA would be repealed and replaced by an entirely new enforcement mechanism that is far more friendly to business.
You can read the California Supreme Court’s opinion in Adolph v. Uber here.
