Last year’s landmark United State Supreme Court (SCOTUS) case, Viking River Cruises v. Moriana, signaled a “win” for California employers by enforcing employment-related arbitration agreements and class action waivers for Private Attorneys General Act (PAGA) claims, effectively waiving the ability of claimants to file these claims on a representative basis.

However, Adolph v. Uber Technologies, Inc. tested the scope and application of the Viking River Cruises holding under California law. The question before the California Supreme Court was whether an aggrieved employee compelled to arbitrate individual claims premised on California Labor Code violations had statutory standing to pursue class/representative PAGA claims in court.

Erik Adolph was a delivery driver for Uber’s UberEats platform in California. As a driver, he was required to accept Uber’s technology services agreement or timely opt out. Adolph did not timely opt out and was therefore bound by the arbitration provision requiring arbitration, on an individual basis only, for work-related claims against Uber. The relevant PAGA provision of the agreement stated:

“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. This waiver shall be referred to as the ‘PAGA waiver’.”

There was also severability language stating:

“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...”

Adolph filed suit alleging individual and class claims under the Labor Code and Unfair Competition Law, claiming that Uber misclassified him and other delivery drivers as independent contractors instead of employees and wrongly failed to reimburse necessary business expenses. In an amended complaint, Adolph added a claim for civil penalties under PAGA.

The trial court, looking to the technology services agreement, granted Uber’s motion to compel arbitration of Adolph’s individual claims and dismissed the class action portion of his claim. Adolph then offered a second, amended complaint, retaining only his PAGA claim for civil penalties. The trial court granted Adolph’s request for preliminary injunction which prevented arbitration from proceeding under the theory that a claimant steps into the shoes of the attorney general to bring a PAGA claim and because the state has not consented to arbitration agreements, they are not enforceable. Uber appealed, but the Court of Appeals affirmed the injunction on arbitration. Prior to the Court of Appeals’ determination being reviewed, SCOTUS made a decision on Viking River Cruises, which touched on the issue of standing present here.

To have standing in a PAGA representative action, the plaintiff must be an “aggrieved employee,” defined as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Adolph’s status as an “aggrieved employee” was not challenged.

Looking to the enforceability of the PAGA waiver, the court reviewed caselaw. Viking River Cruises held that the primary purpose of the Federal Arbitration Act (FAA) was to ensure that private arbitration agreements are enforced according to their terms, requiring the enforcement of agreements to arbitrate individual PAGA claims. However, with regard to the question of whether a plaintiff whose individual claims were forced into arbitration still had standing as an aggrieved party to bring a representative action under PAGA, SCOTUS in Viking River Cruises expressly stated that the highest court of each state is the final arbitrator of its own state law(s) on the issue of standing and could take a contrary position for claims brought under its statutes.

Using the premise of statutory construction, the California court first reviewed the plain language of the PAGA statute and determined that a worker becomes an “aggrieved employee” with standing to litigate claims on behalf of themselves and others upon a Labor Code violation committed by the employer. It further held that standing is not affected by enforcement of an agreement to adjudicate in an alternate forum, like arbitration. Adolph’s allegations that Labor Code violations occurred while he drove for Uber gives him standing to file a PAGA action. Allowing an employee to serve as a PAGA representative, even if they did not personally experience every alleged violation, serves the state’s interest of vigorous enforcement. Therefore, because Adolph filed a PAGA action comprised of individual and class/representative claims, the order compelling arbitration of his individual claims did not strip him of standing to litigate the class/representative claims in court.

In one potential bright spot for employers, the California court did acknowledge that claimants could be forced to stay their representative actions for arbitration to proceed to determine if the individual was an aggrieved party. By leaving open the ability to require plaintiffs to arbitrate their individual claims first to determine if they qualify as “aggrieved,” the court in effect allows for a potentially lengthy and expensive arbitration process that the individual and his/her counsel would have to complete before knowing if that individual was even qualified to bring the representative action. This could make it that much harder for the individual and counsel to attempt to bring the representative action.

Adolph signals a shift back in favor of employees, at least in California, by allowing workers to pursue class/representative PAGA claims even when their individual claims are forced into arbitration due to an arbitration agreement. Nonetheless, companies with employees in California should work with employment counsel to review their arbitration agreements and determine if those agreements can be crafted to ensure that any such representative action would be stayed pending completion of any individual arbitration.

Contact your Aon representative for additional information.