Supreme Court Hands DoorDash Driver a Win in PAGA Case

Washington, DCOn October 12, the U.S. Supreme Court denied DoorDash Inc’s petition for certiorari, thus declining to review the decision of the California Court of Appeals in Brandon Campbell v. DoorDash, Inc. The Court of Appeals’s decision permitted Campbell, a DoorDash driver, to proceed with his Private Attorneys General (PAGA) claim, without first submitting it to arbitration. Campbell’s PAGA claim was based on his allegation that DoorDash’s payment scheme violated the minimum wage requirements of the California Labor Code.

DoorDash took drivers’ tips

On April 19, 2019, Campbell filed a PAGA claim alleging that DoorDash's tipping policy violated California Labor Code section 351. That section of the Labor Code provides that an employer shall not "collect, take, or receive" an employee's gratuity. As the California Court of Appeals noted, “in early 2019, several news sources reported DoorDash had been using customer tips to satisfy its Dashers' guaranteed minimum pay.”

For example, as these sources outlined, if the guaranteed minimum pay for a job was $10, DoorDash first paid the driver a base wage of $1.00. If the customer paid a $5.00 tip, DoorDash counted the tip toward its guaranteed rate and added an additional $4.00 to reach the promised minimum. In this example, Door Dash’s total outlay was $5.00, not $10.00.

DoorDash's policy of adjusting its contribution depending on the tip, allegedly flew in the face of how customers have traditionally viewed tipping – as a bonus in addition to a set base salary from the company. Consumers were essentially subsidizing DoorDash's promised minimum payment – a practice that was described as deceptive.

Campbell had already signed an agreement with DoorDash to arbitrate his wage claim. Many workers believe that arbitration is a relatively futile exercise with respect to wage claims. The only question before the Court of Appeals was whether Cambell’s PAGA claims were also subject to the same arbitration requirement.

PAGA basics

PAGA has a public, rather than a private purpose. The law enables workers to file lawsuits against employers for labor violations – essentially stepping into the shoes of the state government to enforce the state’s labor law. The primary benefit to workers is that, at least in theory, employers have an increased financial incentive to comply with the provisions of the California Labor Code. Although individuals may recover 25 percent of the penalties assessed, most of the money goes to the State of California.

The real financial impact is on the offending employer. The initial labor violation carries a civil penalty of $100 per employee per pay period. Subsequent violations cost the employer $200 per employee per pay period. Taken individually, the penalties are small, but they accumulate quickly.

This is particularly concerning to tech platforms who have large groups of workers who are questionably classified as independent contractors. That is why the issue is of such urgent concern to DoorDash, GrubHub, Uber and Lyft. Much litigation has ensued.

Epic Systems v. Iskanian

Campbell largely relies on the 2014 California Supreme Court decision in Iskanian v. CLS Transportation, Los Angeles, LLC. DoorDash, on the other hand, relies on the 2017 U.S. Supreme Court decision in Epic Systems Corp.  v. Lewis.

In Iskanian, the California Supreme Court held that pre-dispute waivers requiring employees to relinquish the right to assert a PAGA claim on behalf of other employees were prohibited, as such waivers violate public policy and "harm the state's interests in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations."

Four years after Iskanian was decided, the U.S. Supreme Court in Epic Systems held that the Federal Arbitration Act (FAA) instructs federal courts to enforce arbitration agreements according to their terms, and rejected any National Labor Relations Act exception to the FAA.

Since then, however, California courts have uniformly rejected the argument that Epic Systems overruled Iskanian, largely on the grounds that Epic did not address PAGA actions, which are brought on behalf of the state to enforce the state's labor laws.

Where are we now?

It was not entirely surprising, then, that the U.S. Supreme Court declined to take up the question of the arbitrability of PAGA claims. But, although the Court’s plate may be full this term, there is no reason to believe that the issue will not arrive at their doorstep again. The denial of a petition for certiorari is not a binding decision.

Employers who describe themselves as “tech platforms” and run on the backs of workers who they arguably mischaracterize as independent contractors have a huge economic interest in dodging California minimum wage requirements. This issue is likely to appear again.