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California Appellate Courts Are Permitting Employees to Pursue Representative PAGA Claims in Court, Even While Ordering Individual PAGA Claims to Arbitration



In June 2022, the United States Supreme Court definitively ruled in Viking River Cruises v. Moriana that employees covered by arbitration agreements and the Federal Arbitration Act may be compelled to arbitrate their own individual claims for civil penalties under the Labor Code and California’s Private Attorneys General Act (PAGA). However, another aspect of the Viking River decision—what happens to the employee’s “non-individual” or “representative” claims on behalf of other employees and the State of California under PAGA?—has proven to be less conclusive. California Courts of Appeal have recently begun to weigh in on this issue, and the California Supreme Court is expected to decide it in a case now pending on its docket, Adolph v. Uber Technologies.


The High Court in Viking River did not disturb California state law providing that employers and employees can’t agree to waive “representative” PAGA claims from going forward at all. (That was what the California Supreme Court ruled in 2014 in Iskanian v. CLS Transportation Los Angeles.) On the other hand, the Court in Viking River found that an employee whose individual penalty claims are ordered to arbitration loses “standing” to bring representative PAGA claims in court. The Court stated that representative PAGA claims should be dismissed after individual claims are ordered to arbitration. Although Justice Sonia Sotomayor agreed with this conclusion, she cautioned that standing to bring representative PAGA claims is an issue of California state law, and that the California courts and Legislature—not the U.S. Supreme Court—“will have the last word” on state law.


In just the last two months, three California Court of Appeal panels have weighed in on this standing issue. All three have rejected the U.S. Supreme Court’s conclusion, and have instead ruled that an employee retains standing to bring representative PAGA claims in court even after the employee’s individual penalty claims are ordered to arbitration.


The most recent of these decisions is Gregg v. Uber Technologies. Before Viking River was decided, the Court of Appeal refused to enforce an agreement that would have required Johnathon Gregg to bring his individual penalty claims to binding arbitration and to waive his representative PAGA claims entirely. But after its Viking River decision, the U.S. Supreme Court directed the Court of Appeal to reconsider its initial decision in Gregg.


On March 24, 2023, the Court of Appeal issued a new decision in Gregg’s lawsuit. Under Viking River, the appellate court ruled that Gregg must arbitrate his individual penalty claims against Uber—the opposite of what it had ruled before Viking River. However, consistent with Viking River, the appellate court also ruled that the portion of the arbitration agreement under which Gregg would have waived any right to bring a representative PAGA claim is invalid under California state law and cannot be enforced. The court instead ruled that this waiver clause must be severed from the arbitration agreement.


Lastly, the appellate court found that Gregg retained standing to bring his representative PAGA claims against Uber in court—even though he had to bring his own individual penalty claims in arbitration. The court relied on a 2020 state Supreme Court decision (Kim v. Reins International California) allowing plaintiffs who settle and dismiss their individual Labor Code claims to retain standing to bring representative claims under PAGA to recover penalties for injuries sustained by other employees. The appellate court ruled that Gregg could bring his representative PAGA claims in court, but that they would be stayed until after the completion of arbitration of Gregg’s individual penalty claims.


Earlier in March, another Court of Appeal panel came to basically the same conclusion in Piplack v. In-N-Out Burgers. That court stated that under Viking River and Iskanian, the new rule is: “arbitration agreements between employers and employees that require arbitration of the individual portion of a PAGA claim are enforceable, but arbitration agreements that require arbitration (or waiver) of the representative portion of a PAGA claim are not enforceable.”


The first Court of Appeal ruling on the standing issue after Viking River was Galarsa v. Dolgen California, decided in February. That decision, like Piplack and Gregg which followed, determined that: (1) the plaintiff’s individual penalty claims must be sent to arbitration; (2) the contractual waiver of representative PAGA claims was invalid and had to be severed from the rest of the arbitration agreement; and (3) the plaintiff retained standing to bring representative PAGA claims in court.


Meanwhile, several months before Gregg, Piplack, and Galarsa were decided, the California Supreme Court granted review in Adolph v. Uber Technologies. The issue in Adolph is whether “an aggrieved employee” compelled to arbitrate the employee’s own individual penalty claims “maintains statutory standing” to sue under PAGA for penalties based on injuries to other employees—whether in court, arbitration, or any other agreed-upon forum. The U.S. Supreme Court in Viking River essentially predicted the California Supreme Court would answer “no” to this question. Indeed, several federal U.S. District Court judges have followed Viking River and dismissed representative PAGA claims after ordering individual penalty claims to arbitration. But the three Court of Appeal panels in Gregg, Piplack, and Galarsa all reached the opposite conclusion.


We are waiting for the Supreme Court to announce when it will hear oral argument in Adolph. After argument, the Court has 90 days to issue a decision. But there is no deadline for the Court to hear argument, so its decision could come later in 2023, or possibly not until 2024 or even later.


Until the California Supreme Court decides Adolph, lower courts in California are bound by the similar decisions in Gregg, Piplack, and Galarsa. So in state court cases, employers may compel employees with enforceable arbitration agreements to submit their individual penalty claims to arbitration—but their representative PAGA claims will not be dismissed for lack of standing, unless and until our state Supreme Court agrees with the U.S. Supreme Court in Viking River on that issue. On the other hand, some federal judges might remain inclined to dismiss representative PAGA claims after ordering individual penalty claims to arbitration—at least until Adolph is decided.


Another cautionary note: Even if the state Supreme Court issues a ruling favorable to employers in Adolph, the Legislature would remain free to amend PAGA to specifically give individual employees standing to bring representative PAGA claims even after their individual penalty claims are ordered to arbitration.


Although the landscape has changed somewhat for California employers since Viking River was decided, the pre-litigation steps employers should take are largely the same. Employers without arbitration agreements should revisit whether to begin doing so. Existing arbitration agreements should be modified—and new arbitration agreements should be drafted—so they don’t include wholesale waivers of PAGA claims, since the Courts of Appeal have confirmed these waivers are unenforceable, and we expect the California Supreme Court to agree on this point.  


As always, we will closely monitor all developments on these matters. If you have any questions on how to proceed, please call your firm contact at 818-508-3700 or visit us online at www.brgslaw.com.



Sincerely,

Richard S. Rosenberg

David J. Fishman

John J. Manier


www.brgslaw.com
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