In Adolph, the plaintiff (Erik Adolph, a driver for Uber), seeks civil penalties under PAGA, contending that Uber misclassified employees as independent contractors. Before he began working for Uber, the plaintiff signed an arbitration agreement, under the terms of which all disputes between them are to be resolved in arbitration and which purported to waive Mr. Adolph’s right to assert a PAGA claim. The SCCA previously held in Iskanian, however, that PAGA claims are not subject to arbitration and that an agreement waiving the right to bring a representative claim under PAGA violates public policy and is unenforceable. Iskanian, at 384. Based on Iskanian and the cases following it, the trial court denied Uber’s petition to compel arbitration. On appeal, Uber argued that the initial question of whether Mr. Adolph is an employee—who may bring a representative PAGA claim—or an independent contractor—who may not—must be determined in arbitration. Last year, the Court of Appeals of California, Fourth District, Division Three, affirmed the trial court ruling in Adolph, finding that California law is clear that the threshold issue of whether a plaintiff is an aggrieved employee in a PAGA case is not subject to arbitration. Uber appealed to the CASC, and oral arguments were held on May 9, 2023.
While the Adolph case was working its way through California’s courts, the “aggrieved employee” PAGA issue ended up in Federal court in the case Viking River Cruises v. Moriana (“Viking”). In Viking, the plaintiff Angie Moriana filed a PAGA action against defendant Viking in California court on behalf of herself, and other Viking employees, regarding alleged violations of state wage and hour laws. Viking moved to compel arbitration of Moriana’s “individual” PAGA claim and to dismiss her other PAGA claims. The trial court denied that motion and the California Court of Appeal affirmed that ruling under Iskanian, holding that categorical waivers of PAGA standing are contrary to state policy and that PAGA claims cannot be split into arbitrable individual claims and non-arbitrable “representative” claims. SCOTUS granted certiorari to decide whether the Federal Arbitration Act (“FAA”) preempts California’s Iskanian rule that precludes the division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. SCOTUS found the FAA did preempt Iskanian, in an 8-1 ruling last year (See, 142 S.Ct. 1906). On remand to the California Court of Appeal, the state court rulings in Viking were reversed with instructions that the plaintiff’s individual PAGA claims be sent to arbitration, and for further proceedings to determine how the plaintiff’s non-individual claims should be resolved.
With this background, the SCCA heard oral arguments in Adolph on May 9, 2023. The California Justices did not seem to have the SCOTUS decision in Viking at the forefront of their minds, instead focusing their questions on the “employee” vs. “independent contractor” classification distinction, and why the FAA does not necessarily have to be in direct conflict with PAGA. Uber’s counsel argued California should follow the SCOTUS ruling in Viking, and that to rule otherwise would put PAGA on a collision course with the FAA. SCCA Justice Goodwin Liu questioned Uber’s focus on the FAA and the application of the SCOTUS Viking decision, saying, “I don’t see what the FAA problem is, that argues in favor of non-standing here.” The key issues are timing and standing since an individual in California cannot bring a PAGA claim entirely on behalf of others, and (as argued by Uber) sending the individual claims to arbitration would resolve the dispute, such that afterward the plaintiff would no longer have the standing to bring “non-individual” PAGA claims. The plaintiff’s view argued before the CASC in Adolph is that the only standing requirements under PAGA are that the worker is employed by the alleged violator and is “aggrieved” – a person against whom one or more of the alleged violations was committed. In other words, does the named plaintiff have a relationship both with the defendant-employer and the violations that are sought to be adjudicated under PAGA? If so, standing exists according to the plaintiff in Adolph, since the California Legislature’s goal in enacting PAGA was to create a procedure that resulted in maximum compliance with California’s Labor Code.
The SCCA ruling on Adolph will be closely watched, as it may run afoul of SCOTUS. If Uber’s arguments prevail, arbitration of plaintiffs’ individual PAGA claims and dismissal of the plaintiffs’ non-individual PAGA claims will be the law in California. Pursuant to the SCOTUS Viking ruling, the best result for the plaintiff in Adolph would be a ruling that the non-individual claims can remain in court but are stayed pending the arbitration of the individual claim. What is not in dispute is what happens where an individual arbitration is in favor of a defendant-employer; the plaintiff would no longer be able to proceed with the non-individual claims in court since the plaintiff would not be an “aggrieved employee” under PAGA.
A practical takeaway is that employers with arbitration agreements should review their language on waivers of PAGA and class/representative actions. The SCOTUS Viking ruling provides direction on how to draft arbitration provisions that can limit the scope of actions under PAGA. TALG is consulting with its clients on these issues and invites you to contact us with any questions.