The California Supreme Court Has Ruled: Arbitration Agreements Do Not Prevent Employees From Bringing PAGA Claims in Court.

As you know from our many newsletters on the topic, arbitration agreements get more than their fair share of attention in California courthouses. One repeatedly litigated issue is the effect of arbitration agreements on an employee’s ability to bring California Private Attorneys General Act (“PAGA”) claims on behalf of other employees in court (vs. being compelled by employers to arbitrate those claims).

For those unfamiliar: PAGA allows employees to sue as a “proxy” of the State of California to secure civil penalties for Labor Code violations. PAGA allows plaintiffs to do this on behalf of other employees – as a group or representative action – for alleged violations that happened each pay period, for each employee, from one year ago through the present. Frequently, penalties for different types of Labor Code violations stack on top of each other.

Some employers have written arbitration agreements with language that waives employees’ ability to bring PAGA claims in court. This PAGA waiver language has led to many legal challenges. Last year, the U.S. Supreme Court weighed in and issued a pro-employer ruling in Viking River Cruises v. Moriana, finding that once an employee heads to arbitration, that employee lacks standing to pursue representative PAGA claims involving other employees in court. Here is a link to our prior newsletter on Viking River, for fun.

On July 17, 2023 (yesterday), the California Supreme Court (which has the final say on interpreting California laws), took up this issue and reached a conclusion contrary to the U.S. Supreme Court’s Viking River decision, ruling sharply in favor of employees. In Adolph v. Uber Technologies the CA Supreme Court ruled that an employee who is bound by an enforceable arbitration agreement, and who is compelled to arbitrate their individual claims under PAGA, nonetheless retains standing to sue in court for PAGA penalties on behalf of aggrieved employees.

In other words, when an employee has filed a PAGA action comprised of individual and non-individual claims, an order compelling arbitration of individual claims does not strip the employee of standing to litigate non-individual claims in court.

What does this decision mean for California employers with binding arbitration agreements?

If your company has a legally compliant arbitration agreement, you remain in good stead as it relates to class action waivers — such waivers remain enforceable, and courts in California are dismissing class action claims regularly if an arbitration agreement with such language is deemed enforceable under current laws.

But as for representative PAGA claims: companies will need to revisit their arbitration agreements to ensure they are consistent with the new Adolph ruling. In addition, we are bracing for an avalanche of PAGA lawsuits in California.

A pending 2024 ballot measure seeking to repeal PAGA offers a glimmer (albeit faint) of hope. Here is what the California Chamber of Commerce has to say about that California Fair Pay and Employer Accountability Act.

What can you do today, in response to the Adolph decision?

• Join us on August 3, 2023, from 10:00 – 11:00 a.m. for a complimentary remote briefing (BYOBreakfast) to learn:
  • The backdrop and details of Adolph, its implications for your workplace, what you can do today to protect your company from expensive litigation in response to the Adolph decision, and what we see on the horizon;
  • The most common wage and hour law claims targeted in PAGA lawsuits and insights on how to avoid them;
  • What to consider when faced with the risk of PAGA claims.Let us know if you would like to join us on August 3, and we will send you information for joining our briefing.
• The old adage about an ounce of prevention continues to ring true: If your wage and hour practices are compliant with law, then you should never need to worry about a successful arbitration or court action. This is a great time to audit your current practices to ensure you are in compliance with California and federal wage and hour laws, and to bring them into compliance if they are not. Reach out, we want to help!
  If your company currently uses arbitration agreements, we encourage you to have those agreements reviewed in response to Adolph to ensure you are in compliance with current California laws on arbitration agreements. Let us know if we can help you review your current agreements to better protect your workplace.
• If your workplace does not currently use arbitration agreements, even in light of Adolph we recommend you consider implementing arbitration agreements. Reach out if you want to chat about implementing arbitration in your workplace.
• If you already know you are ready to implement arbitration agreements to protect your workplace from costly litigation, and just need help making that happen, our Arbitration Protection Program includes:
  • (1) Up to one hour with one of our attorneys to determine which arbitration agreement and process is best for your workplace;
  • (2) An arbitration agreement tailored to your unique workplace;
  • (3) Step-by-step guidance on how to implement arbitration agreements with your employees;
  • (4) Speaking points you can use for communicating with your employees, including questions to anticipate (and answers to those questions) communications.

The fee for the Arbitration Protection Program is $750 per company, and includes all of the above. Let us know if we can help you protect your company.

We are here to help!

We look forward to seeing you on August 3, and please let us know if we can help in any other way!

Back to Newsletters