California Says Arbitration Agreements Can’t Keep Workers From Suing Over Collective Labor Violations
More than half of non-unionized employees in the U.S. have signed an arbitration agreement in order to work at their current job.
Employers often require workers to sign these agreements to prevent them from suing their company in public court for any labor violations or wrongdoing.
Until recently, employees in California could use a unique state law to bypass the relatively private arbitration process and bring a collective action against their employer in state court.
But in 2022, a new decision issued by the U.S. Supreme Court called into question certain ways that this law, the Private Attorneys General Act (PAGA), allowed employees to seek legal restitution for employer wrongdoing.
Since then, California labor advocates, employees, and companies have waited for the Golden State’s own Supreme Court to settle the questions raised by SCOTUS about arbitration in PAGA employment lawsuits.
After a year of anticipation, the California high court finally weighed in on the issue, via a ruling in a recent PAGA case filed by an UberEats driver (Adolph v. Uber).
This blog post will break down the significance of this case for California workers and employees. We’ll start by explaining the controversy about the Private Attorneys General Act and how it holds companies accountable for workplace wrongdoing.
We will also cover why a California law raised questions for the U.S. Supreme Court, and how the California court’s latest ruling is good news for employees seeking justice for labor violations.
If you have questions, please contact our employment attorneys online or call (866) 442-6755.
Private Attorneys General Act: Deputizing Workers Against Employer Wrongdoing
The Private Attorneys General Act (PAGA) allows employees who’ve experienced labor violations to band together to sue their employer and recover civil penalties on behalf of the state of California.
The law was designed to empower employees, acting as “private attorneys general,” to have a hand in holding employers accountable for widespread violations of California Labor Code.
One-quarter of the financial penalties awarded in a successful PAGA suit go to the employees who filed it. The rest of the damages are paid to a state agency that enforces California’s labor laws and employee protections.
Companies in California weren’t thrilled about the passage of PAGA in 2004. For one, the act gave employees a new avenue to file hard-to-ignore collective lawsuits.
And, unlike in class-action lawsuits, a PAGA claim doesn’t require plaintiffs to go through the legal process of certifying a “class” of employees in order to sue.
Instead, for an employee to participate in a “representative action” as a proxy for the California Attorney General, they need only have experienced a labor violation while employed by the company.
Additionally, PAGA lawsuits couldn’t be swept under the rug by employers’ arbitration agreements. In situations where an employee who’d previously signed an arbitration agreement joined a PAGA case, that individual’s arbitration agreement became legally unenforceable.
California courts deemed that enforcing the arbitration agreements for select individuals within a PAGA collective would be contrary to the interests of public policy, which sought to identify and address widespread labor code violations.
Instead, an employee who’d have previously been forced into arbitration if they’d sued alone was freed from the agreement and allowed to participate in the public collective action in state court — where outcomes and financial settlements are often more favorable to employee plaintiffs than in private arbitration.
However, when a dispute over employer arbitration agreements under PAGA ended up before the Supreme Court of the United States, SCOTUS wasn’t entirely in agreement with the California courts’ way of handling things.
Scotus Defends Employer Arbitration Agreements
In June 2022, the U.S. Supreme Court published a highly anticipated decision about a PAGA case filed by a California employee despite her employer’s arbitration agreement.
In their opinion in Viking River Cruises, Inc. v. Moriana, SCOTUS came down on the side of the employer, whose arbitration agreement California’s state court had previously refused to enforce.
According to SCOTUS, the federal law governing arbitration procedures, known as the FAA (Federal Arbitration Act), demanded that an individual involved in a representative action like PAGA still be held to the individual agreement they’d signed.
The high court rejected California’s policy of banning arbitration for all PAGA claims. Instead, SCOTUS said that an individual’s claim was procedurally separate from the collective PAGA claim.
Put simply, an individual worker’s claim to wrongdoing by a company can be split off from the larger “representative action,” and that individual can be compelled into arbitration.
When the Supreme Court published the Viking River vs. Moriana opinion in 2022, California employers celebrated this decision as a win over PAGA and the state’s disfavorable treatment of arbitration agreements.
There was no longer any legal question over employers’ authority to compel an individual involved in a PAGA labor suit out of court and into arbitration.
But the SCOTUS decision raised a new question, too: What should happen to the rest of the PAGA claim, if an individual employee is split off and forced to arbitrate their dispute?
For instance, can the worker pulled into arbitration still rejoin the PAGA suit later — and potentially gain additional damages that way? Does that worker still lose their standing to sue on behalf of the state? Or, should the rest of the PAGA claim be dismissed entirely?
According to the justices of the high court, it wasn’t their job to answer these questions. Since PAGA is state, not federal law, the California Supreme Court is the proper authority on whether or not California residents can ultimately raise their disputes in state court.
Fortunately, it wasn’t long before a case raising just these questions landed on the desks of the California Supreme Court.
California Supreme Court Says Paga Suits Go On, Despite Arbitration Agreements
In 2019, Erik Adolph filed a lawsuit against his former employer, Uber, claiming he was improperly and illegally classified as an independent contractor.
Adolph and the other drivers turned to PAGA to take Uber to court for this widespread violation of California Labor Code.
But when the suit was announced, Uber protested: They pointed out that when Adolph had started work, he’d signed a contract that required him to handle all disputes with the company in arbitration and waive his right to bring any future PAGA suits.
The case passed to the California Supreme Court. Finally, a year after the changes and questions raised by Viking v. Moriana, the state Supreme Court announced the highly anticipated verdict.
To the disappointment of employers, the court defended PAGA and employees’ right to sue, even in the face of a valid arbitration agreement.
According to the California high court, even if an individual employee who files a PAGA suit is compelled into arbitration, their claim isn’t totally severed from the rest of the representative claim.
Instead, the collective, representative portion of the PAGA suit is paused while the individual goes through arbitration.
If the arbitration process finds that that individual employee was legitimately “aggrieved” by an employer’s wrongdoing, then they still have standing to participate in the “non-individual” PAGA action.
This is implied by the language of the PAGA statute itself, which only has two requirements for employee participation: 1) The employee must have been employed by the company and 2) suffered at least one alleged Labor Code violation while in their employment.
This decision has an important and immediate impact for California employees currently involved in or considering PAGA lawsuits.
Put simply, employee plaintiffs are no longer at risk of having their representative action dismissed if an individual plaintiff is pulled into mandatory arbitration.
That employee still has to go through the arbitration process, and during that time, the representative claim is put on hold.
But if the arbitrator finds that the employee’s individual claims were valid, they can then still pursue the “non-individual” (“representative”) litigation in California court — and potentially win more penalties for other employees and on behalf of the state.
Prior to this recent verdict, many PAGA cases involving arbitration agreements were kept in limbo while the California high court deliberated. Thanks to the Adolph v. Uber decision, though, a number of these employee lawsuits can move forward — now, or in the near future.
Contact An Employment Attorney
If you’re a California worker concerned about labor code violations, employer wrongdoing, or a potential lawsuit, Ottinger Employment Lawyers is here to support you.
For two decades, our team of experienced employment lawyers has fought on behalf of workers to hold companies accountable for their wrongdoing.