On February 2, 2023, the California Court of Appeal (Fifth District) in Galarsa v. Dolgen California LLC, No. F082404 (modified and certified for publication on February 24, 2023) held that an “aggrieved employee” may pursue non-individual claims against their employer under California’s Private Attorneys General Act (“PAGA”) in court, even after their individual PAGA claims have been compelled to arbitration.
PAGA Background PAGA, passed in 2004, enlists employees as private attorneys general to enforce California labor law. It authorizes any “aggrieved employee” to sue on behalf of themselves and other employees and obtain civil penalties. Until the U.S Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ (2022), the California Supreme Court had previously held employee waivers of PAGA actions were invalid and that, unlike class actions, PAGA claims could neither be waived nor compelled to arbitration. Although employers could ordinarily insulate themselves from class-action liability through waivers, they could still be sued in representative PAGA actions.
Legislative History In June 2022, the U.S. Supreme Court in Viking River overruled the California Supreme Court’s prohibition on PAGA arbitration, holding that California employers could force employees to arbitrate their “individual” PAGA claims. Employees would then lose “standing” to pursue non-individual “representative” PAGA claims, thereby providing a basis for dismissal of those “class-action-like” claims. The Supreme Court’s ruling was a significant victory for employers seeking to shield themselves from class- and representative-action liability in California.
Nevertheless, Justice Sotomayor’s concurring opinion in Viking River—which no other justice joined—cautioned that California courts or the California legislature would have the last word in determining whether an employee could pursue “representative” PAGA claims, even if the individual PAGA claims were severed and arbitrated. In fact, the U.S. Supreme Court’s interpretation of state law is not binding on that state’s own courts so long as the state law does not otherwise conflict with the U.S. Constitution, Federal statutes, or regulations. On the contrary, Federal courts are bound by the highest state court’s interpretation of that state’s laws.
One month later, in July 2022, the California Supreme Court granted review in Adolph v. Uber Technologies, Inc., on this same issue: whether an employee retained standing to pursue non-individual PAGA claims after individual claims were severed and compelled to arbitration. While the California Supreme Court has not yet decided the appeal, based on Kim v. Reins International California, Inc., 9 Cal.5th 73 (2020), in which the CA Supreme Court held that an employee retained standing to pursue non-individual PAGA claims even after settling their individual claims, most observers do not expect Adolph to adopt Viking River’s practice of dismissing non-individual claims.
Galarsa The Court of Appeal in Galarsa disagreed with the U.S. Supreme Court’s dismissal of non-individual claims and concluded, based on Kim, that non-individual PAGA claims may still be pursued in a judicial forum even after individual claims are compelled to arbitration.
Given that Adolph is expected to be decided by the California Supreme Court this year, it is curious that the Court of Appeal chose to publish its decision. However, as the only published California case on this issue so far, California trial court judges may now be presented with binding authority preventing them from dismissing non-individual PAGA claims.
Rocha Holds that an Employee Is No Longer “Aggrieved” and Loses Standing if Individual Claims Decided Against Employee in Arbitration In another case, Rocha v. U-Haul Co. of California, No. B322599 (certified for partial publication on February 2, 2023), a different California Court of Appeal (Second District) held that where individual PAGA claims are decided against an employee in arbitration, the employee is no longer “aggrieved” and therefore loses standing to pursue non-individual “representative” PAGA claims in court. Thus, although employers will likely be unable to dismiss non-individual “representative” PAGA claims—at least until the U.S. Supreme Court revisits this issue—they may still be able to stay the non-individual claims while the individual PAGA claims are decided in arbitration. Should the employer prevail in arbitration, then the PAGA claims may still be dismissed. However, if the individual claims are merely settled, based on Kim, an employee would still retain standing to pursue the representative PAGA claims in court.
Although Adolph has not yet been decided, these recent cases essentially confirm the practice we’ve observed from California Superior Court judges. In our experience, although Gordon & Rees has had substantial success in compelling individual PAGA claims to arbitration in California courts, state judges have stayed, rather than dismissed, non-individual PAGA claims. Several Federal courts, on the other hand, have followed the U.S. Supreme Court’s lead in dismissing “representative” claims after compelling individual PAGA claims to arbitration.
Key Takeaway The California Supreme Court is unlikely to adopt Viking River’s conclusion that a plaintiff lacks standing to pursue non-individual PAGA claims after their individual PAGA claims have been compelled to arbitration. Instead, the Court will likely thread the needle the same way that the Court of Appeal has in Galarsa.
Either way, until a decision is issued in Adolph v. Uber Technologies, Inc., the Court of Appeal’s decision in Galarsa will be binding on California state judges and perhaps potentially on Federal judges deciding PAGA matters. As a result, employers will need to carefully weigh the costs and potential benefits of severing the individual and non-individual claims of PAGA cases and trying them in two different forums. The possible benefit is that if the employer prevails in arbitration on the individual PAGA claims, the representative PAGA claims could be dismissed. However, such a victory may be pyrrhic and short-lived. A second “allegedly-aggrieved” employee could theoretically file another PAGA arbitration and seek another bite at the apple before a different arbitrator, and the first arbitration in which the employer prevailed may not have any preclusive effect as to subsequent PAGA arbitrations with other employees. Therefore, an employer may prefer not to compel arbitration of the individual PAGA claims and instead to try the PAGA case before a competent judge in a bench trial (as PAGA confers no right to a jury trial).
Ultimately, the U.S. Supreme Court may decide that making the employer choose between litigating the same claims in different forums, potentially with no preclusive effect as to subsequent claimants, or abandoning the right to arbitration altogether, is incompatible with Federal law and frustrates the purposes of the Federal Arbitration Act. For now, however, employers must cautiously analyze the merits of severing PAGA claims.