In Adolph v. Uber Technologies, Inc., the California Supreme Court held that even when an employee enters into an arbitration agreement requiring the employee to arbitrate only their individual claims, the employee still has a right to continue to pursue remedies under California’s Private Attorneys General Act (PAGA), if they are able to win on their individual claims in arbitration.  The California Supreme Court was quick to overturn the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana issued last summer, which provided employers with some hope to limit PAGA litigation.  Here are five key issues California employers must understand about the issues in the Uber decision:

1. Quick refresher on the California’s Private Attorneys General Act (“PAGA”).

PAGA was enacted in 2004 to authorize aggrieved employees to file lawsuits against employers on behalf of themselves, other employees, and the State of California for Labor Code violations.  PAGA allows aggrieved employees to act as a “Private Attorneys General” to seek remedies against their employer not only for the violations committed against them, but also to recover any violations committed by their employer against other employees.  The plaintiff’s ability to bring claims on behalf of other employees is referred to as “non-individual claims.”

California’s PAGA was designed by the California Legislature to offer financial incentives to private individuals to enforce state labor laws to recover certain civil penalties. The issue regarding whether employers can implement arbitration agreements with PAGA representative waivers was addressed by the U.S. Supreme Court in June 2022 in Viking River Cruises, Inc. v. Moriana

2. U.S. Supreme Court’s Decision in Viking River Cruises, Inc. v. Moriana in June 2022 looked promising for California employers.

In June 2022, the U.S. Supreme Court held in Viking River, that California law (and the prior holding by the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC) “cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.” Therefore, the U.S. Supreme Court found that the Federal Arbitration Act preempted California law and permitted employers to implement arbitration agreements that required employees to bring only their individual claims and not PAGA representative (non-individual) claims in arbitration.  The U.S. Supreme Court said that, as it understood PAGA, because the employee had to arbitrate their individual claims, the employee would not be entitled to continue with their non-individual PAGA claims because PAGA did not provide a method for the employee to continue with their non-individual claims on behalf of other employees in court.  Justice Sotomayor’s concurring opinion in Viking stated that “[o]f course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.”  Jumping on this opening, and only a few weeks after the Viking River decision, the California Supreme Court granted review in Adolph v. Uber Technologies to address this issue. 

3. In Adolph v. Uber, the California Supreme Court rejected the U.S. Supreme Court’s interpretation of PAGA, and held that even through employees may be required to arbitrate their individual claims, they still can potentially continue with a PAGA claim.

In Uber, the California Supreme court reviewed the issue of whether an employee who has been compelled to arbitrate his or her individual claims “maintains statutory standing to pursue non-individual ‘PAGA claims arising out of events involving other employees’ in court.” 

The California Supreme Court explained that in order to have standing to bring a PAGA claim as an “aggrieved employee,” the plaintiff must be “(1) someone who was employed by the alleged violator and (2) someone against whom one or more of the alleged violations was committed.”  The Court explained that this standing requirement is very easy to meet, and as it held in Kim v. Reins International California, Inc., a plaintiff that settled and dismissed his individual claims for damages, still had standing to proceed with his PAGA claims on behalf of other employees.  The Court in Uber continued to explain that PAGA does not require the plaintiff to have an ongoing injury, and that “post-violation events” do not “strip an aggrieved employee of the ability to pursue a PAGA claim…” and went even further in citing Johnson v. Maxim Healthcare Services, Inc., which held that even when a plaintiff’s individual claim may be time-barred as outside of the statute of limitations, this does not prevent the plaintiff from pursuing PAGA remedies. 

4. The Uber decision draws a roadmap for employers in litigating PAGA claims: (1) enforce arbitration agreement, (2) stay the non-individual PAGA claim during arbitration, and (3) a win against the plaintiff in arbitration can prevent the plaintiff from bringing the PAGA claim.

Despite disagreeing with the U.S. Supreme Court’s decision in Viking, the California Supreme Court clarified the roadmap for employers in litigating PAGA cases.  Employers who have arbitration agreements can enforce the agreement, and “the trial court may exercise its discretion to 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, any party may petition the court to confirm or vacate the arbitration award under section 1285 of the Code of Civil Procedure.”  The Court continued to explain that, “If the arbitrator determines that [the plaintiff] 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 [the plaintiff] could no longer prosecute his non-individual claims due to lack of standing.” 

Even if the employer is not successful in winning on all claims in arbitration, the Uber decision nearly forces every employer to take the case through arbitration for the chance of a complete win, which would bar the employee from continuing in bringing a representative action on behalf of other employees in the PAGA case.  Even if the employer does not achieve a complete win in arbitration, the process will provide key discovery and binding testimony from the plaintiff, will likely expose how individualized resolution of the key issues is, and show how long and complicated a trial could potentially take to resolve issues for all employees across the workforce.  This could open potential arguments that the PAGA representative case has trial manageability issues that the plaintiff cannot overcome. 

5. Next steps for employers after the Uber decision.

Review current arbitration agreements and update terms:  California employers need to review their current arbitration agreements with counsel to ensure that they are (1) enforceable and (2) have the correct language to get the most out of enforcing arbitration of employment claims.  For example, employers should consider adding language the agreement will be enforced under section 1281.4 of the Code of Civil Procedure, whereby the trial court must stay the non-individual claims pending arbitration of the plaintiff’s own individual claims.  Employers should also review whether all or most of their workforce have signed the applicable arbitration agreement and review the agreement in place to see if employees who have worked for the company for a long time need to sign an updated agreement. 

Arbitration agreements are still beneficial for most employers in California:  The holding in Uber does not change the prior rule that employers may have employees waive their ability to bring a class action lawsuit, which still provides a huge benefit to employers.  For example, the applicable statute of limitations in a class action lawsuit can extend back four years, and the statute of limitations in a PAGA case is only one year.  Employers should be able to track which employees have not signed arbitration agreements, have a method of easily obtaining copies of all signed arbitration agreements, and periodically review if their arbitration agreements need to be updated and which employees need to sign the updated versions.  Of course, arbitration agreements are not right for all California employers, but companies should review their issue carefully with experienced employment counsel.