PAGA Standing and Arbitration: What California Employers Need to Know Now That the California Supreme Court Has Spoken
On July 17, 2023, the California Supreme Court issued its decision in Adolph v. Uber Technologies, Inc. With this decision California employers need to understand that plaintiffs do not lose standing when individual California Private Attorneys General Act (“PAGA”) claims are sent to arbitration and the PAGA claims of the other class members are likely to be stayed, rather than dismissed, pending determination in arbitration concerning whether a plaintiff is an “aggrieved employee.”
In Adolph, the Court addressed the question of whether an employee who was compelled to arbitrate individual Labor Code and PAGA claims maintains statutory standing to represent a class of other employees in companion PAGA claims. In a unanimous decision, the Court answered the question, “yes,” going against the U.S. Supreme Court’s conclusion on the same issue in Viking River Cruises v. Moriana. Heavily relying on its previous decision in Kim v. Reins International California, Inc., the Court reaffirmed that plaintiffs have standing so long as they are “aggrieved employees.” An aggrieved employee is broadly defined as (1) “someone who was employed by the alleged violator” and (2) “against whom one or more of the alleged violations was committed.” The Court in Adolph ruled that arbitrating individual claims does not strip PAGA plaintiffs of “aggrieved employee” status.
As a practical matter, this means that PAGA representative plaintiffs can rely on the Adolph decision to argue that the underlying representative action should be stayed (and not dismissed) while they litigate their individual claims in arbitration. After their own individual claims have been resolved through arbitration, and assuming the arbitrator finds that the individual employee was a victim of at least one Labor Code violation, they can return to court to litigate claims on behalf of other employees under PAGA.
PAGA has been criticized for spawning frivolous lawsuits and burdening an already overly-taxed judicial system. A ballot initiative to repeal PAGA has now qualified for the 2024 California ballot. Supported by the California Chamber of Commerce and other California business groups, “The California Fair Pay and Employer Accountability Act” would replace PAGA and restore wage/hour law enforcement to the California Department of Labor Standards Enforcement (DLSE). While the future of PAGA is uncertain, one thing is clear – in the short term, the Adolph decision will undoubtedly lead to increased PAGA litigation in the California courts.