On Monday, July 17, 2023 the California Supreme Court issued its much anticipated decision in Adolph v. Uber (Supreme Court Case No. S274671) and, as expected, the California high court in an employee friendly ruling, found that a PAGA Plaintiff does not lose “standing” and can proceed with the “non-individual” or “representative” portion of the claims on behalf of other employees under the Private Attorneys General Act (PAGA) in court, even if the PAGA Plaintiff is required to arbitrate their individual PAGA claims for civil penalties.

A Recap:

As has been widely reported and discussed in the past year, the June 2022 U.S. Supreme Court decision in Viking River Cruises v. Moriana held that PAGA actions could be split into two claims 1) individual claims of the Plaintiff and 2) non-individual claims or representative claims on behalf of other “aggrieved” employees.

The Viking River Court held that a Plaintiff may be compelled to arbitrate their individual claims but that PAGA provides no mechanism for a court to adjudicate the non-individual or representative PAGA claims when the individual claim is being arbitrated. Consequently, while plaintiff’s individual PAGA claim could be arbitrated, the non-individual claims must be dismissed for lack of statutory standing.

This was good news for employers…. so how did the California court’s get involved….because the Viking River case involved a California state law, the California Supreme Court was not bound by the U.S. Supreme Court’s holding and was able to review and issue its own decision on the issue of standing – which was raised in Adolph v Uber Technologies. The California Supreme Court could either reject or accept the Viking River decision and as we now know, the Court rejected the decision.

Adolph v. Uber:

In Adolph, the PAGA Plaintiff alleged Labor Code violations while employed by the defendant and brought suit on behalf of himself and other aggrieved employees pursuant to PAGA. The California Supreme Court ruled the allegations were enough to allow the arbitration of the individual claims and the non-individual claims in court because the claims in arbitration and the claims in court “remain part of the same lawsuit.”

As “the final arbiter of what is state law,” the California Supreme Court was “not bound” by Viking River’s interpretation of PAGA standing, and held when a plaintiff brings a PAGA action, “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 [alleged] employees under PAGA.”

The California Supreme Court stated the only requirements for standing under PAGA is: 1) the plaintiff is an employee; and 2) the employee “sustain[ed] a Labor Code violation committed by his or her employer.”

The California Supreme Court also rejected any suggestion that PAGA required an “injury” to pursue claims for civil penalties in court on behalf of others. Rather, PAGA provides for the ability of a plaintiff to prosecute Labor Code violations committed by an employer against other alleged aggrieved employees, even if the violations suffered by the plaintiff “are only a fraction” of the violations committed by the employer.

The Court reiterated its prior position that that “[e]mployees who were subjected to at least one unlawful practice have standing to serve as PAGA representatives even if they did not personally experience each and every alleged violation.

What This Means

Employers may continue to enforce their arbitration agreements to require the Plaintiff to arbitrate their individual claims and while such arbitration is pending, and the trial court may exercise its discretion to stay the non-individual claims pending the outcome of the arbitration pursuant to section 1281.4 of the Code of Civil Procedure.

For example, if an arbitrator found the employee was not “aggrieved” by any PAGA violation, and that decision resulted in a final judgment, the courts would have to honor that finding, and the employee could not continue to pursue representative PAGA claims in court. On the other hand, if an arbitrator found the employee was “aggrieved,” the employer would be stuck with that finding in a non-individual action in court.

What’s Next for PAGA: PAGA on November ballot

A ballot initiative “California Fair Pay and Employer Accountability Act (FPEAA)” which seeks to put PAGA type claims back into the purview of the Labor Commissioner will be on the November 2024 General Election ballot. [1]

If this measure passes, it would replace PAGA with a new law that would:

  • require the Division of Labor Standards Enforcement (DLSE) be a party to all labor complaints;
  • double statutory and civil penalties for willful violators;
  • require that 100% of monetary penalties be awarded to harmed employees – not legal counsel; and provide resources to employers to ensure labor compliance.

If the measure passes, employees could seek redress through the Labor Commissioner’s office and not have to hire an attorney, and then would not have to share any recovery with legal counsel nor provide 75% of the recovery to the State of California.  The State of California’s Labor and Workforce Development Agency (LWDA) has recovered in excess of $100 Million in PAGA recovery.

According to the California Legislative Analyst’s Office, approximately 5,000 PAGA notices are filed annually. Any penalties won under PAGA must be split between the employees (25%) and the state of California (75%). The State of California has recovered so much money from PAGA cases that it loaned money to the general fund.

In a recent article on PAGA in Cal Chamber Advocacy [2], a review of PAGA case data shows the current average payment that a “worker receives from a PAGA case filed in court is $1,300, compared to $5,700 for cases adjudicated by the state’s enforcement agency.”

The article also points out that attorneys on average recover well in excess of $300,000 in litigating the PAGA actions regardless of how much legal work actually was performed. In reference to the disparity in attorney’s fees paid versus the recovery per employee, in Price v. Uber Technologies, Inc., the plaintiffs’ attorneys were awarded $2.325 million, while the average Uber driver was awarded $1.08. (See California Business & Industrial Alliance v. Becerra, Case No. 30-2018-01035180-CU-JR-CXC (Cal. Super. Ct. 2018).

This ballot initiative may be one way in which employers can seek to battle the never-ending onslaught of PAGA actions.

[1] https://advocacy.calchamber.com/policy/issues/private-attorneys-general-act/

[2] https://advocacy.calchamber.com/2022/07/25/california-fair-pay-and-employer-accountability-act-qualifies-for-2024-ballot/

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