Employers Using Arbitration Agreements Should Monitor This PAGA Case

PAGA arbitration

Today, the California Supreme Court heard oral arguments for Adolph v. Uber Technologies, Inc. and will issue a decision by August 7, 2023. Adolph is a Private Attorneys General Act (PAGA) case that will clarify California’s application of last year’s federal Viking River decision.

As previously reported, the U.S. Supreme Court ruled that individual claims under PAGA can be compelled to arbitration if the employee signed a valid arbitration agreement to that effect (Viking River Cruises v. Moriana, 142 S.Ct. 1906 (June 15, 2022)). The Court also concluded that when an employee’s individual claim is compelled to arbitration, it’s separated from the representative PAGA action, and the employee would no longer have standing to maintain the representative claims in court. Thus, the remaining representative PAGA claim would be dismissed from civil court once the individual PAGA claim was compelled to arbitration.

This was positive news for California employers because it meant that if they had a valid arbitration agreement, they could compel an employee’s individual PAGA claim to arbitration, and then dispose of the representative component at the same time.

However, shortly after this employer win, several California Courts of Appeal rejected the Supreme Court’s representative-standing conclusion. Relying on Justice Sonia Sotomayor’s concurring opinion in Viking River, some courts held that a plaintiff does not lose standing to bring a representative PAGA claim on behalf of others simply because their individual PAGA claim was compelled to arbitration.

To settle this issue, the California Supreme Court granted review in Adolph v. Uber Technologies, Inc. This is a pivotal topic given how prevalent and costly PAGA claims are in California. PAGA lawsuits have increased more than 1,000 percent since the law took effect in 2004, which is likely due to the significant monetary awards that can be levied against an employer.

Although some courts have stayed this issue pending the outcome of Adolph v. Uber Technologies, Inc., a recent California appellate court decision signaled how they think the California Supreme Court will rule (Galarasa v. Dolgen, F082404 (Feb. 24, 2023)). The Galarasa court viewed a distinction between two types of PAGA claims:

  • “Type A “claims, which are those suffered by the plaintiff individually and can be ordered to arbitration — using “A” for arbitration; and
  • “Type O” claims, which are those in which a plaintiff is seeking to recover civil penalties because of a violation suffered by other employees — using “O” for other.

The court concluded that a plaintiff compelled to arbitrate Type A claims still has standing for Type O claims in California because these claims litigate two separate rights. In other words, the court argued that the two claims are not based on the same primary right. The plaintiff’s Type A claims arise out of their own employment with the employer, whereas the Type O claims are based on a different right — the employment of other employees with the employer.

The court predicts that the California Supreme Court would agree with this analysis and argued that their interpretation best effectuates the PAGA’s purpose of ensuring effective Labor Code enforcement.

If the Adolph court rules like the Galarasa court, an employee who has their individual PAGA claim compelled to arbitration could still pursue a representative PAGA action in civil court — which would limit one of the biggest benefits of the Viking River decision.

Employers that use arbitration agreements, or are considering their use, should consult with their legal counsel and continue to monitor pending litigation. CalChamber will continue to closely follow this case and other related legal developments.

Sarah Woolston, Employment Law Counsel/Subject Matter Expert

CalChamber members can read more about “Arbitration Agreements” in Offering Employment in the HR Library. Not a member? Learn more about how HRCalifornia can help you.

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