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California Supreme Court Holds Employees May Maintain Representative PAGA Actions in Court Even If Required to Arbitrate Their Individual Claims
The California Supreme Court decided Adolph v. Uber Technologies, Inc., No. S274671, 2023 WL 4553702 (Cal. July 17, 2023), in which it unanimously held that, when an employee is required to arbitrate his or her individual Labor Code claims against an employer, the employee still has standing to pursue a representative action on behalf of other employees under California’s Private Attorneys General Act (PAGA), Cal. Lab. Code §§ 2698 et seq. The Court’s opinion will be significant for California employers going forward, even including those who have negotiated strong arbitration clauses in their employment agreements.
Notably, the California Supreme Court in Adolph expressly disagreed with the U.S. Supreme Court’s characterization of California law in its recent arbitration opinion, Viking River Cruises, Inc. v. Moriana, __ U.S. __, 213 L. Ed. 2d 179, 142 S. Ct. 1906 (2022). While the U.S. Supreme Court in Viking River construed California law to deny standing to PAGA plaintiffs in virtually identical circumstances, the California Supreme Court in Adolph dismissed the federal high court’s read on California law. Not only did Viking River not control, the California Supreme Court said, but the state court would not even treat the federal opinion as persuasive authority. Adolph slip op. at 11.
The Viking River—Adolph standoff serves as a timely reminder that while the Federal Arbitration Act (FAA) may determine and preempt arbitration rules nationwide, when it comes to certain aspects of state substantive law and procedure, the State supreme court or legislature, and not the U.S. Supreme Court, may have the final say.
This blog post covers the California Supreme Court’s Adolph opinion, the U.S. Supreme Court’s Viking River decision that led to it, and the implications of those cases going forward.
An Uber Eats driver sues Uber over its labor practices, and the parties dispute whether they must arbitrate his claims
Plaintiff Erik Adolph was a driver for Uber Eats, a meal delivery service owned and operated by Uber Technologies, Inc. To begin making deliveries for Uber Eats, Adolph created an account with the Uber Eats app and accepted the Uber Eats user agreement, which contains an arbitration clause governed by the FAA.
Shortly after commencing work as an Uber Eats driver, Adolph came to believe that Uber was misclassifying him and other drivers as independent contractors. Instead, he said, Uber should have classified them as employees and reimbursed them for certain expenses. Adolph filed a putative class action against Uber, asserting claims in both an individual capacity and a representative capacity under PAGA.
However, Uber pointed out that the user agreement required arbitration of disputes, and that in it, users waived all claims they might bring in a representative capacity under PAGA. The agreement provided that users may bring claims in an individual capacity only, whether in court or in arbitration.
Based on these provisions of the user agreement, Uber moved to compel arbitration, strike the class allegations, and stay all court proceedings pending arbitration. The trial court granted the petition compelling arbitration of Adolph’s individual claims, found that the class claims were waived, and stayed the PAGA cause of action.
Adolph then moved to amend his complaint to abandon all individual causes of action, including his individual Labor Code claims and class claims, and to proceed only on his representative PAGA claim for civil penalties. He also moved to enjoin the arbitration because, he argued, he had abandoned his arbitrable claims. The trial court granted both motions, following California precedent holding that PAGA claims are not arbitrable. See Iskanian v. CLS Transp. L.A., LLC, 59 Cal. 4th 348, 386-87 (2014). Iskanian held that because a PAGA claim is technically brought on behalf of the State, which is not a signatory to the employment agreement, a PAGA claim is not subject to any arbitration agreement between the employee and the employer, despite the FAA’s broad terms. Id.
The Court of Appeal in Adolph considers itself bound by California Supreme Court precedent holding PAGA claims are not arbitrable, even though it anticipates an impending change in the law
The Court of Appeal (Fourth District, Division 3) affirmed. Adolph v. Uber Techs., Inc., No. G059860, 2022 WL 1073583, at *5 (Cal. Ct. App. Apr. 11, 2022). The Court of Appeal observed (at *4) that the U.S. Supreme Court appeared poised to decide in Viking River Cruises, Inc. v. Moriana, No. 20-1573, whether the Iskanian rule is preempted by the FAA because it discriminates against arbitration by prohibiting outright the arbitration of a particular type of claim. See Kindred Nursing Centers L. P. v. Clark, 581 U.S. 246, 251 (2017).
Nevertheless, the Court of Appeal concluded that, “[u]nless and until the United States Supreme Court or the California Supreme Court directly overrules it, the courts of this state must follow the rule of Iskanian[.]” Adolph, 2022 WL 1073583, at *5. Uber petitioned the California Supreme Court for review.
The U.S. Supreme Court hands down a mixed decision in Viking River, and creates a new opening for defendants to challenge PAGA claims—statutory standing under state law
Meanwhile, as Uber’s petition for review was pending, the U.S. Supreme Court did indeed abrogate Iskanian—but not in its entirety. Viking River Cruises, Inc. v. Moriana, __ U.S. __, 213 L. Ed. 2d 179, 142 S. Ct. 1906 (2022). The question presented in Viking River was “whether the [FAA] preempts a rule of California law that invalidates contractual waivers of the right to assert representative claims under California’s [PAGA.]” Id. at 1913.
Justice Alito authored the majority opinion. As an initial matter, the Court held that “Iskanian’s rule remains valid” to the extent it held that, in California, parties cannot waive representative standing to bring PAGA claims in a judicial or arbitral forum. Id. at 1925; see id. at 1922-23. This aspect of Iskanian is not preempted. See id.
However, the Court also held that, contrary to Iskanian, the FAA requires the enforcement of agreements calling for the arbitration of individual PAGA claims. Id. at 1924.
Consequently, the Court further held that another aspect of Iskanian was preempted, having to do with a procedural quirk of California PAGA law. Id. at 1925. The Court explained that, under California law, parties cannot agree to “pare[ ] away” individual PAGA claims and arbitrate or litigate them separately from representative PAGA claims, because it would vitiate PAGA’s deterrent purpose. Id. Thus, the Court held that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” Id. at 1924.
The Court then proceeded to the “remaining question,” which was “what the lower courts should have done with Moriana’s non-individual claims.” Id. at 1925. The Court explained that the trial court should have compelled the plaintiff to arbitrate her individual claim, while keeping the PAGA claim in court. See id. However, the Court observed that under California law, a plaintiff lacks standing to maintain a PAGA claim if she does not also bring an individual claim. Id. As the Court explained, “[w]hen an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” Id. “As a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.” Id. (citing Lab. Code §§ 2699(a), (c), and Kim v. Reins Int’l Cal., Inc., 9 Cal. 5th 73, 90 (2020)).
Justice Sotomayor filed a concurring opinion that picked up on this twist in California standing law. Id. at 1925-26 (Sotomayor, J., concurring.) She wrote: “Of course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word. Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits. With this understanding, I join the Court’s opinion.” Id.
Justice Sotomayor was the fifth, and thus decisive, member of the Court’s majority who joined Justice Alito’s opinion in full. (Justices Breyer, Kagan, and Gorsuch also joined it in full.) Among other points of disagreement, Chief Justice Roberts, Justice Kavanaugh, and Justice Barrett did not join the portion of Justice Alito’s opinion discussing statutory standing under California law. Thus, while not controlling (e.g., under the Marks doctrine, see Marks v. United States, 430 U.S. 188, 193 (1977)), Justice Sotomayor’s opinion may be given more weight than a typical concurring opinion.
In Adolph v. Uber, the California Supreme Court overturns the U.S. Supreme Court’s assumption about PAGA standing, and holds that employees may simultaneously arbitrate their individual claims and maintain a representative PAGA action in court
While Viking River terminated Moriana’s PAGA representative claim, Adolph’s case against Uber was still active in the California appellate system. And Viking River gave Uber a new way to challenge Adolph’s case against it: the plaintiff’s lack of statutory standing. While the statutory standing issue did not play a role in the Court of Appeal’s opinion in Adolph, it became the sole issue in the California Supreme Court in that case after the U.S. Supreme Court handed down its opinion in Viking River. (It is rare for the California Supreme Court to resolve a case on grounds not discussed in the Court of Appeal’s opinion. The U.S. Supreme Court’s intervening decision in Viking River opining on state standing law likely had a determinative role in this occurrence here.)
The California Supreme Court granted Adolph’s petition review to resolve the question left open by Justice Sotomayor’s concurring opinion in Viking River Cruises. That is: “[w]hether an aggrieved employee who has been compelled to arbitrate claims under [PAGA] that are ‘premised on Labor Code violations actually sustained by’ the aggrieved employee … maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ … in court or in any other forum the parties agree is suitable.” Adolph QP, No. S274671 (quoting Viking River, 142 S.Ct. at 1916).
In a unanimous opinion, the California Supreme Court reversed the Court of Appeal. The Court first observed that Viking River left intact Iskanian’s holdings that California law makes unenforceable (1) a predispute categorical waiver of the right to bring a PAGA action, and (2) a predispute waiver of the right to bring representative PAGA claims. Slip op. at 7–8. The Adolph Court recognized, however, that “Viking River requires enforcement of agreements to arbitrate a PAGA plaintiff’s individual claims if the agreement is covered by the FAA.” Slip op. at 9.
However, the California Supreme Court disagreed with the U.S. Supreme Court’s holding that a plaintiff, once compelled to arbitrate her individual claims, would then lack statutory standing under California law to maintain her representative PAGA claim in court. Slip op. at 10 (citing Viking River, 142 S. Ct. at 1925). Citing Justice Sotomayor’s concurring opinion in Viking River, the Adolph Court noted it was not bound by the U.S. Supreme Court’s description of California law, and did not even consider Viking River to be “persuasive” authority. Slip op. at 10–11.
Applying de novo review and giving no deference to Viking River, the California Supreme Court held that “Adolph’s allegations that Labor Code violations were committed against him while he was employed by Uber suffice to confer standing to bring a PAGA action.” Slip op. at 13; see also id. at 21 (“It is plaintiff’s status as an aggrieved employee, not the redressability of any injury the plaintiff may have suffered, that determines the availability of PAGA standing.” (cleaned up)). (Notably, this formulation of standing is quite distinct from the federal concept of Article III standing, which requires injury-in-fact, causation, and redressability.)
In a small silver lining for employers, the Adolph Court addressed Uber’s concern regarding the unmanageability of maintaining two parallel actions, one in court and one in arbitration, to deal with a single employee’s PAGA claims. The Court explained that once an arbitrator has made a determination as to whether the employee is “aggrieved,” the issue may not be relitigated in the parallel representative action in court. Slip op. at 17 (citing Viking River, 142 S. Ct. at 1923-25).
The Adolph Court concluded by acknowledging the concerns of several amici, who argued that PAGA has been a vector for litigation abuses. Slip op. at 24. The Court responded that “[t]hese arguments are best directed to the Legislature, which may amend the statute to limit PAGA enforcement if it chooses.” Id.
Conclusion
The California Supreme Court’s opinion in Adolph is sure to make waves in the labor and employment space. Time will tell whether its influence will extend to federal courts applying California law, or whether it will be limited to California state courts due, for example, to differences between state and federal standing doctrines. Adolph is also an opinion trial and appellate counsel should bear in mind when assessing how much weight a federal court opinion is likely to have in the state courts—even when the federal court in question is the nation’s highest court.