Post-Viking PAGA Standing Clarified by California Supreme Court: A Setback for Employers

PAGA overview

California Private Attorney General Act ("PAGA") authorizes employees to bring "representative" action on behalf of themselves, other employees, and the State of California. PAGA plaintiffs act as "bounty hunters" and can receive a portion (25%) of the penalties that they "hunted" for the state. PAGA civil penalties are awarded per person per violation, per pay period, and may raise stakes to millions of dollars. One employee's claims could potentially increase the stakes and push employers to unwanted settlements. To avoid representative actions, some employers use arbitration agreements and class action waivers. Though PAGA is not a class action, it is a special kind of "enforcement" action that authorizes an employee to act as a "proxy" for others. This status as a "proxy" was the subject of many employers' headaches and reached the U.S. Supreme Court.

The Viking and Adolph cases: an employee can sue PAGA in court but may first have to prove his individual claims in arbitration.

On June 15, 2022, the U.S. Supreme Court issued its long-awaited decision in Viking River Cruise, Inc. v. Moriana. It held that California employees could waive their PAGA standing in arbitration agreements. Employers welcomed the Viking decision but also knew that it left some questions unanswered.

On July 17, 2023, California Supreme Court issued its decision in Adolph v. Uber Technologies, Inc., explaining the post-Viking position on PAGA standing. It ruled that a PAGA plaintiff who is compelled to arbitrate his/her individual PAGA claims can still retain the standing as a representative for others' PAGA claims. That is, "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." Id.

In the Adolph case, the agreement with Uber included the PAGA waiver, "To the extent permitted by law, you and Company agree not to bring a representative action on behalf of others under the [PAGA] in any court or in arbitration." The agreement also included a severability clause, "If the PAGA Waiver is found to be unenforceable or unlawful for any reason, (1) the unenforceable provision shall be severed from this Arbitration Provision; (2) severance of the unenforceable provision shall have no impact whatsoever on the Arbitration Provision or the Parties' attempts to arbitrate any remaining claims on an individual basis pursuant to the Arbitration Provision; and (3) any representative actions brought under the PAGA must be litigated in a civil court of competent jurisdiction..."

Though Uber was successful in moving Adolph's Labor Code claims to arbitration and had Adolph's class action claims dismissed, Adolph's PAGA representative claims held the key to the battle. Without the PAGA representative standing, Adolph's claims would be limited to only his own individual claims. But with the PAGA representative standing, Adolph would be litigating millions-worth penalties of thousands of other drivers against Uber. The Supreme Court of California has just opened this path for Adolph.

But even though the path is open, it may still have to go through the gates of arbitration. The court held in Adolph that the trial court may stay the non-individual PAGA claims pending the outcome of the arbitration (individual claims) to determine Adolph's standing to pursue the non-individual claims.

What does this mean?

The Adolph case presents a setback for employers, but at least it gives clarity as to how to use arbitration agreements in employment settings. Employers should revisit arbitration agreements to optimize protections against PAGA claims in view of the Adolph case. A categorical waiver of PAGA action is unenforceable. See Adolph at p. 7. An employee also cannot waive PAGA claims on behalf of other employees. However, if an employee must first arbitrate his individual claims to prove his/her standing as a representative in PAGA claims, this may give employers an extra step to eliminate PAGA representative actions.

Employers also should stay tuned as there is a pushback against PAGA. The Fair Pay and Accountability Act ballot is set to be voted on in November 2024 to replace PAGA.