California Supreme Court Issues Hotly Anticipated Ruling on Arbitration and PAGA Claims

July 17, 2023 Advisory

On July 17, 2023, the California Supreme Court issued a hotly anticipated ruling in Adolph v. Uber Technologies, Inc. The decision follows the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana last summer, where it was held the Federal Arbitration Act (FAA) preempted a California rule that actions under the Private Attorneys General Act of 2004 (PAGA) could not be divided into individual and non-individual claims where the parties had agreed to arbitrate individual claims. The decision rested, in part, upon the arbitration agreement’s severance clause, which specified that if the agreement’s PAGA waiver was deemed unenforceable, the representative portion of that claim would be litigated in court. The U.S. Supreme Court then held that employees who are compelled to arbitrate their individual claims lose standing to assert their non-individual (representative) claims. However, in a concurring opinion, Justice Sotomayor opined that the issue of non-individual standing under PAGA may be for California courts to decide.

Following Viking River, Adolph was the first case to address the issue of non-individual standing under California law before the California Supreme Court. The issue before the Court in Adolph was “whether an aggrieved employee who has been compelled to arbitrate claims under PAGA that are ‘premised on Labor Code violations actually sustained by’ the plaintiff maintains statutory standing to pursue PAGA claims arising out of events involving other employees.” Today, the California Supreme Court answered that a plaintiff does not lose standing to bring a representative claim under PAGA even when a court compels them to litigate their individual claims in arbitration. In reaching this decision, the California Supreme Court tacitly approved the notion that courts should stay the non-individual claims under Code of Civil Procedure section 1281.4 pending resolution of the individual claim in arbitration.

Even though the California Supreme Court’s decision was expected and anticipated, companies should review their arbitration agreements to ensure they are valid and enforceable to the extent allowed under the law, and to ensure they receive the complete benefits of an arbitration policy. To account for Viking River and Adolph, an arbitration agreement must be governed by the FAA and include language regarding the arbitrability of individual and non-individual PAGA claims. A valid policy will permit companies to compel arbitration and seek a stay of any representative claim.

If you have questions regarding your company’s arbitration policy, please reach out to your regular Armstrong Teasdale contact or one of the authors listed below.

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