California employees can now seek representative (non-individual) Private Attorneys General Act (PAGA) penalties in court even when their individual PAGA claims are compelled to arbitration, thanks to a highly anticipated state Supreme Court decision.  In Adolph v. Uber Technologies, Inc., a disappointing decision for California employers, the California Supreme Court held “an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.”

The Adolph decision resolves the conflict between the U.S. Supreme Court’s decision last summer in Viking River Cruises, Inc. v. Moriana and California’s previous interpretations of PAGA’s standing requirements in cases such as Kim v. Reins International California, Inc.. In Viking River, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) preempted California’s “Iskanian” rule, which prohibited dividing PAGA claims into individual and representative claims. However, the Court upheld Iskanian’s ban on wholesale employee waivers of representative claims under PAGA. In a short-term win for employers, Viking River had also held that representative PAGA claims are not viable in court when uncoupled from a plaintiff’s individual PAGA claim in arbitration. While the California Supreme Court did not disturb Viking River’s primary mandate, which held arbitration agreements for individual PAGA claims covered by the FAA are enforceable, the Adolph decision upends Viking River with respect to PAGA standing.

In a PAGA action, an employee acting on behalf of the State of California may sue their employer seeking penalties for violations of the California Labor Code allegedly suffered not only by the employee but also by other allegedly aggrieved employees. In Adolph, the California Supreme Court confirmed the plaintiff must only establish that he or she is an “aggrieved employee,” i.e. (1) someone who was employed by the alleged violator of the Labor Code and (2) someone against whom at least one of the alleged violations was committed, in order to bring a PAGA representative claim on behalf of other employees.

After noting that it was not bound by Viking River’s interpretation of California state law, the Court further explained, “[s]tanding under PAGA is not affected by enforcement of an [arbitration] agreement to adjudicate a plaintiff’s individual claim in another forum.” This is because an arbitration proceeding, alone, does not nullify the fact that the employee suffered a violation and, thus, does not “extinguish the plaintiff’s status as an aggrieved employee.”

Although employers can no longer seek dismissal of non-individual PAGA claims in court when an employee’s individual PAGA claim is compelled to arbitration, Adolph does not render employers entirely defenseless to PAGA representative claims. If an employer succeeds in proving in arbitration that an employee did not suffer any Labor Code violations, the employee will then lose standing to pursue non-individual PAGA penalties on behalf of other employees.  In addition, employers may challenge the manageability of a PAGA representative claim in court. 

Employers should carefully review and revise their arbitration agreements with their employment counsel to address the impacts of this important decision.