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Stayin’ Alive: California Supreme Court Holds that PAGA Representative Claims Can Remain in State Court During Arbitration of Individual Claims
Jul 19, 2023

Stayin’ Alive: California Supreme Court Holds that PAGA Representative Claims Can Remain in State Court During Arbitration of Individual Claims

Topics: Class Actions, Court Decisions, Wage & Hour Issues

As anticipated, earlier this week, the California Supreme Court broke from the U.S. Supreme Court’s Viking River Cruises v. Moriana decision, and further tipped the scales in favor of PAGA plaintiffs in California by holding that PAGA plaintiffs retain standing to litigate representative PAGA claims after the plaintiff’s individual PAGA claims have been ordered to arbitration. The case is Adolph v. Uber (Supreme Court Case No. S274671). The State Supreme Court’s decision continues a trend of cases that chip away at PAGA’s standing requirement, and its implications are significant for California employers.

By way of background, in 2022, the United States Supreme Court held in Viking River that the Federal Arbitration Act (“FAA”) requires enforcement of an agreement to arbitrate a PAGA plaintiff’s claim for civil penalties to the extent the claim is based on alleged violations the plaintiff personally experienced (i.e., arbitration of “individual PAGA claims”). While the High Court upheld the California rule prohibiting the required waiver or arbitration of a PAGA plaintiff’s claim for civil penalties based on alleged violations experienced by others (i.e., the “representative PAGA claim”), the Viking River decision also concluded that the representative PAGA claim must be dismissed once the individual claim is compelled to arbitration. The Court found that a PAGA plaintiff lacks Article III standing to maintain a representative PAGA claim after their individual PAGA claim was sent to arbitration. In Adolph v. Uber, the State Supreme Court rejected that conclusion. 

Instead, the California Supreme Court Justices found that an order compelling arbitration of a plaintiff’s individual PAGA claim does not strip them of standing to maintain the representative PAGA claims in court because the claims in arbitration and the claims in court “remain part of the same lawsuit.” The decision further trivializes the PAGA’s standing requirement. In prior decisions, California courts held plaintiffs retain standing to litigate a PAGA claim even after they agreed to settle their individual claims (Kim v. Reins Int’l Cal.) and that PAGA plaintiffs may assert claims for civil penalties based on alleged Labor Code violations they never experienced so long as the plaintiff suffered just one alleged Labor Code violation (Huff v. Securitas Sec. Servs.). 

The Court’s Adolph v. Uber decision follows this trend by rejecting Uber’s arguments that after a PAGA plaintiff resolves their individual PAGA claim in arbitration they do not have sufficient skin in the game to proceed with a representative PAGA claim solely based on alleged violations against other, non-party employees - i.e. there would be no justiciable controversy between the parties to the action. Astonishingly, the Court responded that the plaintiff’s claim for attorney’s fees creates a sufficient enough personal stake in the litigation of the non-individual, representative claims.

As usual, the Court justified its litigant-friendly interpretation of PAGA by relying on the purported legislative purpose behind the PAGA: to deputize employees to pursue sanctions on the state’s behalf because the state’s labor law enforcement agencies are too understaffed and underfunded to enforce the Labor Code. That may have been true when PAGA was enacted. In the intervening twenty years, however, the LWDA has received hundreds of millions of dollars from PAGA settlements and judgments. So much so that a recent budget provided for a $100 million loan from California’s PAGA fund to the General Fund - even though the legislature specifically earmarked these funds for the state’s direct enforcement of the Labor Code. 

Given the Court’s past decisions interpreting PAGA and the legislature’s failure to curb abusive lawsuits brought under the Act, the ultimate outcome of Adolph was predictable. But the Court’s analysis in the Adolph decision raises two new issues that California employers may be forced to grapple with in the years to come:

  1. First, the Court’s decision implies that representative PAGA claims should be stayed in court pending the arbitration of individual PAGA claims, but it left the door open for plaintiffs to make arguments to the contrary. Under Code of Civil Procedure section 1281.4 a court is required to stay an action when there is a pending “arbitration of a controversy which is an issue involved in an action.” Yet throughout the Adolph opinion, the Court articulates Section 1281.4 as a discretionary stay, creating the implication that there may be circumstances that would allow the PAGA plaintiff to separately and concurrently arbitrate individual PAGA claims and litigate representative PAGA claims in court.  Employers may be able to prevent that result by ensuring their arbitration agreements explicitly provide for a stay of representative PAGA claims pending the arbitration of individual PAGA claims. That will allow them to argue a stay of the court action is required both by the arbitration agreement and section 1281.4.
  2. Second, the Court’s decision implies that plaintiffs may have standing to maintain a PAGA claim even if they cannot recover a civil penalty on behalf of themselves for a violation they experienced. The implication in the Adolph opinion arises from the Court’s citations to Johnson v. Maxim Healthcare Services, Inc. (2021) 66 Cal.App.5th 924, to support the proposition that a plaintiff may have standing to maintain a PAGA claim even if the plaintiff’s individual claim is time-barred. This may give support to the absurd claim that a plaintiff has standing to seek PAGA civil penalties solely based on violations against other, non-party employees so long as the plaintiff experienced a Labor Code violation at any point in time, even outside of the one year statute of limitations that applies to PAGA actions. Hopefully that is not the case, as the Johnson decision allowed a PAGA plaintiff to maintain standing based on very unique facts. Specifically, the plaintiff was a current employee who was allegedly required to sign an unlawful non-compete agreement at the outset of their employment, which was outside the PAGA’s one-year limitations period. Under the circumstances, one could argue the plaintiff-employee was suffering continuing violation because the allegedly unlawful agreement still governed their employment. But it would be absurd to argue that any past violation, regardless of the circumstances, may support standing under PAGA. If taken to its logical extreme, an employee who last worked for an employer 10 years ago could have standing to seek PAGA civil penalties on behalf of others even though the plaintiff could not recover a civil penalty for any violation they experienced during their employment.

Unfortunately, one can reasonably expect future PAGA plaintiffs to seize on these uncertain portions of the Adolph opinion to support arguments in an attempt to further diminish PAGA’s standing requirement and allow for the proliferation of PAGA litigation in the years to come.

If you have any questions about this blog post, please contact the authors Sander van der Heide and Corey Cabral or your favorite CDF attorney. To subscribe to CDF’s California Labor & Employment Law Blog to ensure you don’t miss out on future posts, click here.

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For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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Sacramento Office Managing Partner and Chair of CDF’s Traditional Labor Law Practice Group. Mark has been practicing labor and employment law in California for thirty years. His practice has a special emphasis on the representation of California employers in union-management relations and handling federal and state court litigation and administrative matters triggered by all types of employment-related disputes. He is also adept at providing creative and practical legal advice to help minimize the risks inherent in employing workers in California. He recently named “Sacramento Lawyer of the Year” in Employment Law-Management for 2021 by Best Lawyers®.
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