Adolph v. Uber Technologies, Inc.: Plaintiffs Compelled to Arbitrate Their Individual PAGA Claims May Still Litigate Representative PAGA Claims

In this case, plaintiff Erik Adolph delivered food for defendant Uber Technologies Inc. through the company’s Uber Eats platform. As a condition of his employment, Adolph was bound by an arbitration agreement in which he agreed to arbitrate claims against Uber on an individual basis, and the arbitration agreement also included language that, if enforced, would waive his right to bring any representative actions under PAGA in either court or arbitration. Among other things, the agreement contained a severability clause preserving arbitration to the extent the provision was valid and enforceable.

Adolph filed a lawsuit in California Superior Court alleging individual and class claims for relief, claiming that Uber misclassified him and other delivery drivers as independent contractors rather than as employees and, as a result, wrongfully failed to reimburse them for necessary business expenses. Uber filed a motion that resulted in Adolph’s individual Labor Code claims being compelled to arbitration and his class action claims getting dismissed. With the court’s permission, Adolph filed an amended complaint, which eliminated his individual Labor Code claims and class claims and retained only his PAGA claim for civil penalties. The trial court granted Adolph’s request for a preliminary injunction, preventing arbitration from proceeding. Uber filed a second motion to compel arbitration of Adolph’s independent contractor status and validate the enforceability of the arbitration agreement, which was denied.

The Court of Appeal affirmed. Citing Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 379, the Court of Appeal held that the trial court properly found that PAGA claims are not subject to arbitration, that an agreement waiving the right to bring a claim on behalf of other employees under PAGA violates public policy and is unenforceable, and that “California case 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 California Supreme Court, and during the pendency of the matter, the U.S. Supreme Court issued Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. __ [142 S.Ct. 1906], which abrogated Iskanian in part by ruling that arbitration agreements covered by the Federal Arbitration Act preempt California’s state law that “PAGA actions cannot be divided into individual and non-individual claims” where the parties have agreed to arbitrate individual claims. Viking River, however, was not binding on the issue of whether, under California state law, a plaintiff compelled to arbitrate his or her individual PAGA claims continued to have standing to litigate non-individual PAGA claims on behalf of other employees.

In the wake of Viking River, the California Supreme Court rendered its opinion in Adolph v. Uber and reversed and remanded the Court of Appeals decision for further proceedings consistent with its opinion (and Viking River). The California Supreme Court reviewed and answered the standing question left open by Viking River and concluded that under California law, plaintiffs may litigate non-individual representative PAGA claims, even when their individual PAGA claims are compelled to arbitration. This is true even if the employee obtains redress for individual claims through arbitration or settlement.

Adolph v. Uber Technologies, Inc. went on to suggest that trial courts should stay non-individual PAGA claims pending arbitration of a plaintiff’s individual PAGA claims. Under such circumstances, if a plaintiff is determined to not be an “aggrieved employee” for PAGA purposes, issue preclusion would apply and, once reduced to a final judgment, trial courts are bound by the arbitrator’s determination and the plaintiff loses standing to pursue non-individual PAGA claims.

In the final paragraphs of the opinion, the California Supreme Court acknowledged arguments that it should narrow PAGA’s “standing requirements in order to curb alleged abuses of PAGA.” The Court, however, advised that such arguments should be directed to the legislature.

Along these lines, in November 2024, California voters will be able to vote on an initiative to repeal PAGA and replace the law with The Fair Pay and Employer Accountability Act. The proposed new law, among other things, (i) would no longer provide aggrieved employees the right to file a civil lawsuit, but instead place the Labor Commissioner in charge of adjudicating claims, (ii) such claims may not be arbitrated, (iii) all penalties would be awarded to the aggrieved employee, (iv) civil and statutory penalties for willful violations would be doubled, (v) the Division of Labor Standards Enforcement would be required to be a party to all labor complaints, and (vi) attorneys’ fee awards would no longer be available.

What This Means for Employers
Employers will not be able to avoid representative civil actions regarding alleged Labor Code violations through arbitration agreements. However, an effective arbitration agreement can still assist employers in avoiding the costs and burdens of a class action, and it can provide some defense to PAGA claims.

Employers should review their arbitration agreements, particularly with respect to severability clauses. The law in this area is nuanced and compliance is key. In the aftermath of Viking River, Adolph and Iskanian, carefully written arbitration agreements may be the difference and enable employers to avoid class actions and compel individual PAGA claims to arbitration, while staying proceedings of non-individual PAGA claims.

Arbitrating individual PAGA claims prior to being subject to a representative action has the following potential benefits to employers: (1) it forces the individual plaintiff to adjudicate the merits of his/her own claims; (2) the outcome of arbitration could result in the plaintiff being stripped of PAGA standing; (3) the risks of an adverse outcome potentially encourage early settlement; and (4) it provides time and a potential opportunity to reach resolution before a plaintiff can seek excessive discovery and request issuance of Belaire notices, which give notice to other current and former employee about the pendency of the PAGA action. In addition, the evidence gathered in an individual arbitration may give rise to manageability and other defenses if the matter eventually proceeds as a representative action in state court. When settling individual claims, employers should consider including an express release of PAGA claims, with a waiver of the right to bring individual or representative PAGA actions, and with the employee acknowledging that they are not an “aggrieved employee.”