In a ruling with critical implications for California employers, on July 17, 2023, the California Supreme Court held that employees can file a civil action under the Private Attorneys General Act (“PAGA”) even if they are bound by contract to submit their individual-based claims to arbitration. The issue came before the Supreme Court in the matter of Adolph v Uber Technologies, Inc. The Court rejected Uber’s argument that employees who resolve their PAGA claim in arbitration are barred on procedural grounds from resurrecting any such claim in a civil action. The Court held that PAGA is designed to promote enforcement of the Labor Code and should therefore be interpreted broadly to allow just such bifurcation – expressly authorizing arbitration of the employee’s own Labor Code violation claims, as well as the maintenance of a civil action to address Labor Code violations suffered by co-workers. The decision can be found here.
PAGA was enacted nearly twenty years ago. It authorizes employees to sue employers on behalf of the state itself to recover civil penalties for Labor Code violations. Under PAGA, employees may recover penalties for Labor Code violations suffered by themselves and may also recover penalties for violations suffered by co-workers. Prior to PAGA, the Labor Code did not allow private causes of action to recover civil penalties.
The Uber decision comes one year after the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, which held that PAGA claims are subject to arbitration under the Federal Arbitration Act. That decision left open the question of the individual’s right to proceed with a PAGA action after resolving his or her own PAGA claims. That question has been resolved – at least for now – by Uber.
In reaching its decision, the Court acknowledged the argument that PAGA litigation can be abusive. The Court found that its hands were tied in addressing such abuse because its role was to follow PAGA, not reform it. The Court held that arguments regarding such abuses should be addressed to the Legislature.
While the decision may result in increased PAGA filings, it identifies some potential pitfalls for PAGA plaintiffs. The Court noted that where an arbitrator finds an individual employee has not suffered any Labor Code violation, such individual could not thereafter sue in court as only “aggrieved” employees can sue under PAGA. The Court also agreed that the civil actions could be stayed pending individual arbitrations, thus creating a backlog of PAGA cases. Given that a ballot initiative to address PAGA’s abuses is on the ballot for 2024, such backlogs may not be resolved before PAGA is scaled back by the state’s voters.
For now, employers who routinely use arbitration agreements to efficiently resolve employee claims should now reassess the value of such agreements at the outset of any PAGA case. In some – but not all – situations, it may ultimately prove to be less expensive and more efficient to waive the right to enforce an arbitration agreement and to proceed instead in one forum in state or federal court.