United States: Uber Hits California Court Speedbump In Labor Case

A unique California labor law withstood a court challenge, dealing a blow to business owners who were seeking limitations on workers' rights to sue collectively. The California Supreme Court's decision in the Uber case keeps the controversial law in place, but a trio of attorneys from Seyfarth Shaw — Michael Afar, Bailey Bifoss and Andrew Paley — encourage employers to pump the brakes on pessimism.

The California Supreme Court recently announced its highly anticipated decision in Adolph v. Uber. The headline? A plaintiff whose individual Private Attorneys General Act (PAGA) claims are compelled to arbitration retains standing to pursue representative PAGA claims in court.

The ruling in Adolph confirms the state court's departure from last year's U.S. Supreme Court decision in Viking River v. Moriana, which held that there would be "no mechanism" for a court to adjudicate an employee's representative PAGA claims once their individual claims were compelled to arbitration. But there is a silver lining for employers: The Adolph decision affirms the existence of important tools in employer toolboxes to defeat employee standing and defend PAGA claims on an individual basis while representative claims are stayed.

And in even further potential future good news for employers: An effort is underway in the state to repeal the law through a ballot initiative.

Background

Before Viking River, it had long been the rule in California that a PAGA claim could not be split into individual (affecting the employee only) and representative (affecting many workers). Additionally, the right to bring a PAGA claim in court could not be waived, making otherwise enforceable arbitration agreements inapplicable to these claims.

In June 2022, the U.S. Supreme Court considered California's position on PAGA claims and rejected it — mostly. In a decision written by Justice Samuel Alito, the court held that the Federal Arbitration Act preempted California's rule preventing courts from dividing PAGA claims into their individual and representative component parts. PAGA claims could be so split and, correspondingly, an employee's individual PAGA claims could be compelled to arbitration under an otherwise enforceable agreement. Without the individual claims, Alito wrote, a PAGA plaintiff would lack standing to pursue representative claims and those claims should therefore be dismissed.

Justice Sonia Sotomayor concurred with the majority opinion but highlighted the uncertainty that lingered after the court's decision. She warned that the court's understanding of state law may be "wrong" as to the question of a plaintiff's standing to pursue representative claims once his or her individual claims are ordered to arbitration, and noted that, "in an appropriate case, [California courts] will have the last word."

Accepting Sotomayor's invitation, the California Supreme Court granted review in Adolph v. Uber a month later. The lower court decisions in Adolph did not themselves tread new ground — the appeals court affirmed the trial court's denial of Uber's motion to compel arbitration in a driver misclassification case. Rather, the focus on Adolph came from the anticipated (and correct) belief that it would resolve the question of standing left open by Sotomayor's concurring opinion.

The case against Uber

As anticipated by appeals courts, the California Supreme Court held that, "where a plaintiff has filed a PAGA action [composed] of individual and non-individual claims, an order compelling arbitration of individual claims does not strip the plaintiff of standing to litigate non-individual claims in court." The court relied heavily on the legislative purpose of PAGA in reaching its decision, as well as statutory language establishing, in the court's view, that a worker achieves PAGA standing "upon sustaining a Labor Code violation committed by his or her employer."

In rejecting Uber's arguments advocating for a contrary outcome, the court resolved several other points concerning the litigation of PAGA actions.

For example, the court made clear that the outcome of a PAGA plaintiff's individual arbitration will be binding on issues of standing to the favor of the prevailing party. If a plaintiff establishes one or more individual labor code violations in arbitration, the plaintiff then continues to have standing to litigate their non-individual claims in court. If, however, a plaintiff is unable to establish an individual violation in arbitration, the plaintiff loses standing and can no longer pursue a representative PAGA claim in court. This position is consistent with the court of appeal's prior ruling inRocha v. U-Haul.

Additionally, sending an employee's individual PAGA claims to arbitration does not sever those claims from the employee's representative claims in court. Rather, the PAGA claim remains a single, unitary action that should be subject to the mandatory stay provisions of California Civil Procedure Code Section 1281.4.

What it means for employers

The decision is nuanced and leaves important questions still unanswered — for example, the potential impact of a decision in arbitration that dismisses the individual PAGA claim without a finding that the plaintiff is an aggrieved employee.

Nevertheless, the Adolph decision affirms that employers are not defenseless in litigating PAGA actions.

First, under the Adolph holding, employers can – and should – defend against individual PAGA claims in arbitration with the assurance that, if they prevail, the worker will be unable to proceed with their representative PAGA claims. This should allow employers the ability to demonstrate that the plaintiff is not an aggrieved employee without having to face the burden and expense of responding to overbroad discovery requesting information as to every non-exempt employee. Further, even if the individual defense in arbitration is unsuccessful, employers retain the ability to challenge a plaintiff's representative claims on substantive and/or procedural (e.g., manageability) grounds.

Second, as noted above, the court specifically held that ordering an employee's individual claims to arbitration does not sever a PAGA action. California Code of Civil Procedure Section 1281.4 allows trial courts to use their discretion in issuing a stay only as to severable proceedings. Otherwise, a stay is mandatory. Thus, representative PAGA claims should be stayed pending the outcome of individual arbitration.

The fight over PAGA claims is far from over, with other important decisions pending from the California Supreme Court and talk of proposed ballot measures that would make wholesale changes to the PAGA framework.

Originally published by Corporate Compliance Insights.

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