In a much-anticipated decision, the California Supreme Court in Adolph v. Uber Technologies unanimously held that a plaintiff, compelled to arbitrate individual claims under the Private Attorneys General Act (PAGA), does not forfeit standing to litigate non-individual claims in court. This ruling comes a year after the US Supreme Court reached the opposite result in Viking River Cruises, Inc. v. Moriana, stating that, under the Federal Arbitration Act, employers may compel their employees to arbitrate individual PAGA claims and seek dismissal in court of any remaining non-individual PAGA claims for others based on lack of standing.

See our previous discussion in detail here.

In her well-publicized concurrence in Viking River, Justice Sonia Sotomayor observed that the resolution of non-individual claims under PAGA would be a matter for the California courts or legislature to decide. However, following Viking River, California courts issued decisions on both sides of the standing issue, and as discussed below, the Adolph decision puts this issue to rest under state law.

What Happened in Adolph?

In Adolph, the plaintiff worked as a driver and delivered food to customers. As a condition of employment, he was required to accept the company’s Technology Services Agreement, which bound him to an arbitration provision. The plaintiff sued in Orange County Superior Court, claiming he and other drivers were misclassified as independent contractors and entitled to reimbursement of business expenses. The company moved to compel arbitration of this issue but was unsuccessful. After the Court of Appeal affirmed this outcome, the California Supreme Court agreed to review the case to provide “guidance on statutory standing under PAGA.”

Relying on Viking River, the company argued to the Supreme Court that if plaintiff’s individual PAGA claims were resolved through arbitration, his claims would be extinguished, and therefore, he would have no standing to represent other “aggrieved employees.” The plaintiff disagreed and argued that this outcome was inconsistent with the legislature’s goal to use PAGA to achieve compliance with the Labor Code, and because PAGA only required that there be a single violation involving “aggrieved employee,” the plaintiff had standing to represent others.

The Supreme Court declined to follow Viking River and sided with the plaintiff, finding that standing was not forfeited by arbitrating the individual PAGA claims. Rather, the Court explained that PAGA only required the plaintiff to: (1) be “employed by the alleged violator,” and (2) be an employee “against whom one or more of the alleged violations [of the Labor Code] was committed.” Accordingly, the Court held that “[a]rbitrating a PAGA plaintiff’s individual claim does not nullify the fact of the violation or extinguish the plaintiff’s status as an aggrieved employee,” and opined further that, “[any] narrower construction of PAGA standing would ‘thwart the Legislature’s clear intent to deputize employees to pursue sanctions on the state’s behalf.’”

What Happens Now if Individual PAGA Claims Are Compelled to Arbitration?

The Adolph decision is significant because it settles what will happen to non-individual PAGA claims under California law if they are not dismissed for lack of standing. In particular, the Court found that when individual PAGA claims are compelled to arbitration, if the arbitrator concludes that the plaintiff is an “aggrieved employee,” this determination is binding on the lower court. Therefore, the plaintiff has standing to seek penalties on behalf of others in that proceeding. Conversely, if the arbitrator determines that the plaintiff is not “aggrieved,” the plaintiff could lose standing altogether. Furthermore, irrespective of the outcome, the Court found that the parties could rely upon the arbitrator’s decision regarding whether plaintiff is an “aggrieved employee” and would not need to re-litigate the issue in the trial court proceeding.

Additionally, as discussed in our prior alert, in July 2022, the California Secretary of State announced that the California Fair Pay and Employer Accountability Act (FPEAA) had qualified as an eligible statewide ballot initiative for the November 2024 election. If successful, among other provisions, the FPEAA would repeal PAGA and replace it with a new statute pursuant to which: (1)employees will no longer have a “private right of action” to bring wage/hour claims, (2) the power of the California Division of Labor Standards Enforcement (DLSE) to contract with private agencies and/or attorneys to “assist” with enforcement will be eliminated (3) the DLSE will be required to provide “pre-enforcement advice” to the parties regarding pertinent claims, (4) employers will be able to correct potential issues and avoid penalties, (5) 100% of any applicable penalties will be awarded only to the “aggrieved employee,” and (6) penalties for “willful violations” of the Labor Code will be increased.

Following the issuance of the Adolph decision, any employer that has been utilizing or is interested in utilizing arbitration agreements for its workforce should immediately contact their preferred labor and employment counsel to consider the best course of action.