California Supreme Court Rejects Viking River – Representative PAGA Claims May Proceed in Court Even if Employee’s Individual Claims Are Subject to Arbitration

By XobeeAdmin on July 19, 2023 in Legal Update

Last year’s U.S. Supreme Court decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022) offered California employers a glimmer of hope in the often-gloomy world of Private Attorneys General Act (“PAGA”) litigation. In Viking River, the U.S. Supreme Court ruled that the Federal Arbitration Act (“FAA”) preempted otherwise binding California case law precluding division of PAGA actions into individual and non-individual claims through an arbitration agreement. The Court further held that once the employee brings their individual PAGA claims to arbitration, they thereafter lack standing (i.e., the legal ability to sue) to pursue representative PAGA actions on behalf of other “aggrieved employees” in court. While the Viking River decision was a victory for employers, Justice Sotomayor’s separate, concurring opinion suggested any cause for celebration might be short lived—“if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.”

Yesterday, the California Supreme Court took up Justice Sotomayor’s offer of pronouncing its “last word” on the issue of standing in Adolph v. Uber Technologies, No. S274671 (July 17, 2023), holding that where 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. What this means is that—although employees must arbitrate individual PAGA claims pursuant to an enforceable arbitration agreement—they may still litigate representative, non-individual PAGA claims in court on behalf of other “aggrieved employees.”

A. Analysis of Decision

While the Adolph decision is disappointing to employers, it is not surprising.  As we reported in April (read our blog here), several California Courts of Appeal had already split with Viking River, holding the plaintiff in those cases had to arbitrate their individual PAGA claims in arbitration, but still maintained standing to sue on behalf of other employees in court. Indeed, the Adolph Court cited to five such decisions as additional support for its holding. Thus, Adolph signals a return to the pre-Viking River landscape, as predicted by the lower courts’ decisions and suggested by the invitation of Justice Sotomayor for California Courts to determine the issue. Those plaintiffs subject to employment arbitration agreements are still free to pursue their PAGA representative claims on behalf of other “aggrieved employees” in court despite any type of arbitration agreement to the contrary.

In reaching its decision, the Adolph Court first looked to the definition of “aggrieved employee” in the PAGA statute along with the recent decisions Kim v. Reins International California, Inc., 9 Cal.5th 73 (2020) and Johnson v. Maxim Healthcare Services, Inc., 66 Cal.App.5th 924 (2021). With these authorities in mind, the Court held that a worker becomes an “aggrieved employee” and gains standing by sustaining a Labor Code violation committed by his or her employer, and such standing under PAGA “is not affected by enforcement of an agreement to adjudicate a plaintiff’s individual claim in another forum . . . Arbitrating a PAGA plaintiff’s individual claim does not nullify the fact of the violation or extinguish the plaintiff’s status as an aggrieved employee.”  Adolph, at 13.

The Court then looked to the legislative purpose and history of PAGA for further justification for its decision. It noted that PAGA requires a broad construction with the “centerpiece” of PAGA being a plaintiff’s ability to prosecute numerous Labor Code violations and obtain civil penalties for such violations. With what the Court viewed as PAGA’s mandate from the Legislature of “vigorous enforcement” of the Labor Code and a remedy for “long-standing funding deficiencies” of the Labor Code’s enforcement division, the Labor and Workforce Development Agency (LWDA), it held that an interpretation of the statute that would impede an employee’s ability to prosecute violations committed against other employees would undermine PAGA’s purpose. With these considerations in mind, the Court summarized its decision as follows: “an order compelling arbitration of individual claims does not strip the plaintiff of standing to litigate non-individual claims in court.”  Adolph, at 17.

B. Practical Considerations

For those employers with employment arbitration agreements, Adolph forecloses the potential introduced by Viking River of preventing PAGA representative actions through enforceable arbitration agreements. For employers that modified their arbitration agreements after Viking River, they may want to consider amending their agreements again to be consistent with the holding of Adolph.

As the Viking River and Adolph decisions show, this area of employment law is constantly evolving, and there is a real tension between federal arbitration law and employment arbitration agreements in California. Now is a good time for California employers to review their employment arbitration agreements with qualified legal counsel to ensure compliance with the latest pronouncement of the California Supreme Court.

The Adolph case, PAGA, and related issues will be discussed in more detail during our October 11 webinar on “What California Employers Need to Know about Wage and Hour Law Compliance” (click here to sign up on our website events page).