Can PAGA Claims Survive U.S. Supreme Court’s Pro-Arbitration Decisions?

San Francisco, CAIn 2023, in Adolph v. Uber Technologies, the California Supreme Court will decide whether non-individual Private Attorneys General Act (PAGA) claims can be heard in a courtroom, rather than before an arbitration panel. This is profoundly significant for lawsuits brought under the California Labor Code because many savvy employers now require employees to agree to arbitrate any disputes and to waive their rights to assert PAGA claims. Employer arbitration panels are where workers’ wage and hour claims go to die. PAGA claims have been the exception.

The lawsuit is also notable because, in the long-running contest between California workers and a very conservative U.S. Supreme Court, the California Supreme Court will get the last word. As Supreme Court Justice Sonia Sotomayor’s slyly noted in her concurring opinion in Viking River Cruises, Inc. v. Angie Moriana, “Of course, if this [U.S. Supreme] Court’s understanding of state law is wrong, California courts … will have the last word.”

What Happened?

Erik Adolph took a job as an UberEATS driver. Before he began working in March 2019, he created an account to use the UberEATS app. The app connects drivers with work.

In creating his account, he accepted an arbitration agreement, which "is governed by the Federal Arbitration Act," and which "applies to any dispute, past, present or future, arising out of or related to this Agreement.” Lots of legalese -- but the bottom line is no agreement to arbitrate, no app, no work.

In October 2019, Adolph filed a class action lawsuit against Uber, claiming that the company had misclassified him and other drivers as independent contractors and had failed to pay them as required by California labor law. The complaint alleged that Uber violated Labor Code section 2802, and the California Business and Professions Code section 17200. He also brought PAGA claims, essentially stepping into the shoes of the State of California to enforce provisions of California law.

Litigation Twists and Turns

Uber moved to compel arbitration of Adolph's individual claims, strike the class action allegations, and stay all court proceedings. At trial, the Orange County Superior Court held that Adolph's individual claims were governed by his agreement to arbitrate disputes, but that his PAGA claims were shielded from arbitration because of the California Supreme Court’s 2014 decision in Iskanian v. CLS Transportation. In Iskanian, the California justices ruled that arbitration agreements could not include PAGA waivers because PAGA plaintiffs act on behalf of the state. California is not bound by a pre-employment arbitration pact to which it was not a party. The PAGA claims could be divided off and go to trial. The Court of Appeals affirmed the trial court’s decision.

In the meantime, however, the U.S. Supreme Court in Viking River Cruises overturned Iskanian, holding that, a plaintiff whose individual claim is subject to arbitration no longer has standing to take claims on behalf of other workers to court.

But, as Justice Sotomayor reminded us, the California Supreme Court is the ultimate authority on what California law is. In July of 2022, the California high court agreed to hear the case. On December 5, 2022, California Attorney General, Rob Bonta filed an amicus brief  in support of Eric Adolph. The schedule has yet to be set.

PAGA as Last Line of Defense for Workers’ Wage and Hour Claims

In 2004, the California Legislature amended the California Labor Code, enacting PAGA to address serious and widespread violations of California labor law and the problem of significant under-enforcement of those laws. PAGA authorizes employees, acting on behalf of the state, to recover civil penalties for labor code violations. Where the employee prevails, 75 percent of all penalties recovered goes to the Labor and Workforce Development Agency, leaving the remaining 25 percent to be distributed among the aggrieved workers.

Individual workers may actually recover very little, perhaps not enough to make up for lost wages. PAGA works primarily as a deterrent for employers, who may find the total penalty too high to risk.

U.S. Supreme Court Pro-Arbitration Stance

For years, Congress has pursued a policy of encouraging arbitration rather than litigation. On its face, the policy seems to make sense. It generally makes the resolution of disputes faster and cheaper for all involved. In fact, however, mandatory arbitration appears to overwhelmingly favor employers. Employees win less often and receive much less in arbitration than they do in court. As a consequence, many employers now include mandatory arbitration clauses in their standard employment agreements. For employers engaged in interstate commerce, these clauses are generally covered by the Federal Arbitration Act (FAA). The U.S. Supreme Court has routinely upheld the application of the FAA to employment cases.

California’s carve-out for representative PAGA claims, as imperfect a remedy as it is for workers, may be their last line of defense. That could fall if the California Supreme Court agrees with the U.S. Supreme Court in applying the Viking River Cruises rationale to Adolph. This is a case to watch.