Publication

In Adolph v. Uber Technologies, the California Supreme Court considered the following question: Does an aggrieved employee who has been compelled to arbitrate his or her individual claim under California’s Private Attorneys General Act  (“PAGA”) still maintain statutory standing to pursue non-individual PAGA claims in court? The answer? Unanimously, yes.

Erik Adolph was an Uber Eats driver for Uber Technologies, Inc. (“Uber”) and was bound by an arbitration provision in Uber’s technology services agreement, which required him to arbitrate on an individual basis almost all work-related claims he might have against Uber. The agreement also contained a PAGA waiver, stating in relevant part, “To the extent permitted by law, you and Company agree not to bring a representative action on behalf of others under [PAGA] in any court or in arbitration.” The agreement also contained a severability clause, which stated that if the PAGA waiver were found unenforceable, it could be severed from the agreement without impacting the arbitration provision or attempts to arbitrate remaining claims on an individual basis, as well stating that representative PAGA actions must be litigated in court.

Adolph sued Uber, alleging the Company misclassified him and other delivery drivers as independent contractors rather than as employees and thus, wrongfully failed to reimburse them for necessary business expenses in violation of the Labor Code and the Unfair Competition Law. Adolph later amended his original complaint to add a claim for civil penalties under PAGA. The trial court granted Uber’s motion to compel arbitration of Adolph’s individual claims and dismissed the class action claims. Adolph subsequently filed a second amended complaint, retaining only the PAGA claim for civil penalties. The trial court granted Adolph’s request for a preliminary injunction, which kept the arbitration from proceeding. Uber filed another motion to compel arbitration, which the trial court denied. Uber then filed separate appeals regarding both the injunction and the denial of the second motion to compel arbitration, which were consolidated and affirmed by the Court of Appeal. Uber then filed a petition for review with the California Supreme Court.

After Uber appealed to the California Supreme Court, the U.S. Supreme Court decided Viking River Cruises, Inc. v. Moriana, which held that the Federal Arbitration Act (“FAA”) preempted California’s rule that “PAGA actions cannot be divided into individual and non-individual claims” where the parties agreed to arbitrate individual claims.[1] Under this holding, PAGA claims could be split into individual and non-individual (i.e., representative) claims, and individual PAGA claims could be compelled to arbitration. However, the Viking River Court concluded that without individual claims, a PAGA plaintiff would lack standing to pursue representative claims and that those claims would then need to be dismissed. Justice Sonia Sotomayor, while concurring with the majority opinion, noted that the Supreme Court’s understanding of California law could be incorrect regarding whether a plaintiff had standing to pursue representative claims once the plaintiff’s individual claims were ordered to arbitration.

After the Viking River decision was released, the California Supreme Court granted review to provide guidance on statutory standing under PAGA. In its Adolph decision issued on July 17, 2023, the Court unsurprisingly departed from Viking River in regard to its analysis of California law and held “[w]here a plaintiff has brought a PAGA action comprising individual and non-individual claims, an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.” Looking to the plain language of the statute, the Court noted that the statute only has two requirements for PAGA standing: someone who was employed by the alleged violator and against whom one or more of the alleged violations was committed. Moreover, the Court explained that it had previously declined to impose additional requirements not found in the statute, citing to its decision in Kim v. Reins International California, Inc. In that case, the Court held a worker is an “aggrieved employee” with standing to litigate PAGA claims on behalf of other employees upon sustaining a Labor Code violation committed by the employer, irrespective of whether the plaintiff later settles his own individual claims. Likewise, here, Adolph alleged that he experienced at least one Labor Code violation while driving for Uber, which is sufficient to confer standing to bring a PAGA action based on the labor code violations allegedly suffered by others.

Notably, the Court did not rule on whether court proceedings regarding the representative claims must be stayed pending the arbitration of individual claims, but it suggested a stay may be practical to allow an arbitrator to determine if an individual is in fact an aggrieved employee. Indeed, many trial courts have exercised their discretion to stay representative claims following the Viking River decision.

This decision leaves intact the open questions raised by Kim v. Reins regarding how to address PAGA claims in the context of severance and settlement agreements, given that a plaintiff retains standing to pursue PAGA claims on behalf of others after settling his own. California employers should review their arbitration agreements in light of Adolph and carefully consider the practical impact and limitations the decision will have on the benefits of arbitration.

We encourage you to reach out to one of the authors listed below or your Michael Best attorney with any questions or inquiries relate to this update.