Analysis: Supreme Court of California Rebukes United States Supreme Court and Affirms Workers’ Rights to Hold Employers Accountable Despite Mandatory Arbitration Agreements
July 2023 - In Adolph v. Uber Techs., Inc. (2023) --- P.3d ---, 2023 WL 4553702, the Supreme Court of California this week issued a long-awaited worker-friendly rejoinder to the United States Supreme Court’s employer-friendly Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. __ [142 S.Ct. 1906] decision.
By means of background, the California Legislature enacted the Private Attorneys General Act of 2004 (PAGA) “almost two decades ago in response to widespread violations of the Labor Code and significant underenforcement of those laws.”[i] Broadly, PAGA provides an enforcement mechanism for aggrieved employees—those that have suffered at least one Labor Code violation (failure to pay wages, overtime provide breaks, provide accurate wage statements reimburse business expenses, etc.) at the hands of their employers—to file suit against those employers on behalf of the State of California and their aggrieved co-workers for statutory penalties on a per pay period per employee basis. Those penalties can add up and are distributed 75% to the State of California and 25% to the aggrieved employees.[ii]
In light of this purpose and structure and the proliferation of pre-employment mandatory arbitration agreements designed to curtail, if not eliminate, employment class actions entirely, in 2014, the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 held that PAGA representative claims could not be forced to arbitration.[iii] Thereafter, California courts held that PAGA actions could not be split into individual and non-individual proceedings, thus effectively shielding PAGA actions from losing their capacity to hold employers accountable for illegal practices simply by virtue of employers requiring employees to sign mandatory arbitration agreements.
Viking River overruled that later precedent, holding that the Federal Arbitration Act (FAA) “preempts the rule of Iskanian insofar as it precludes division of a PAGA action into individual and non-individual claims through an agreement to arbitrate.”[iv]. As Adolph points out “Viking River requires enforcement of agreements to arbitrate a PAGA plaintiff’s individual claims if the agreement is covered by the FAA.”[v]
While this holding alone creates a significant additional hurdle for aggrieved employees in California who have signed arbitration agreements—before Viking River such employees could not be compelled to arbitrate any aspect of their PAGA claim, now they must arbitrate the individual portion of their PAGA claim, i.e. whether or not they suffered a Labor Code violation and to what extent—the U.S. Supreme Court went further, concluding that a PAGA plaintiff loses standing to assert a representative PAGA claim altogether by virtue of having to arbitrate their individual claim.[vi]
The issue before the California Supreme Court in Adolph was whether an employee loses standing to pursue a representative PAGA claim in court if that employee’s individual claim has been compelled to arbitration. The Court emphatically rejected the notion the United States Supreme Court expoused in Viking River, 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.”[vii]
The California Supreme Court forcefully pushed back, and indeed effectively reversed the U.S. Supreme Court’s standing decision, citing Justice Sotomayor’s acknowledgement in her Viking River concurrence that “Of course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word” for its authority to do so.[viii]
The California Supreme Court took this invitation seriously and, in a rare demonstration of federalism in action, said yes, the U.S. Supreme Court’s understanding of California law is wrong: Aggrieved employees do not lose standing under PAGA to represent the state and their co-workers by virtue of signing a mandatory pre-arbitration agreement or being compelled to arbitrate their “individual” PAGA claims.
Thus, thanks to Adolph, regardless of whether an employee has signed an arbitration agreement with their employer, the employee can still maintain a PAGA action in California and hold their employers accountable for violating California law on a representative basis.
[i] Adolph, supra, 2023 WL 4553702, at *3.
[ii] Cal. Lab. Code § 2699(i).
[iii] Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348.
[iv] Viking River, supra, 596 U.S. at p. __ [142 S.Ct. at p. 1924].
[v] Adolph, supra, 2023 WL 4553702, at *4.
[vi] Viking River, supra, 596 U.S. at p. –––– [142 S.Ct. at p. 1925].
[vii] Adolph, supra, 2023 WL 4553702, at *1.
[viii] Viking River, supra, 596 U.S. at p. –––– [142 S.Ct. at p. 1925] (conc. opn. of Sotomayor, J.).
Brian Conlon is a partner at Phillips, Erlewine, Given & Carlin LLP. Brian has represented numerous employees in their PAGA claims and class action litigation to fight for the just treatment of workers under California law. He is licensed to practice in California and New York and represents clients in state and federal trial and appellate courts.