Discretion: The Better Part of Valor in Defending Against California PAGA Claims

Since the Supreme Court’s decision in Viking River Cruises v. Moriana, California employers have been implementing and enforcing arbitration agreements requiring employees to arbitrate their individual Private Attorneys’ General Act (“PAGA”) claims. But what happens to the representative PAGA claim once the employee’s individual PAGA claim has been severed and sent to arbitration? The U.S. Supreme Court held in Viking River that the representative PAGA claim had to be dismissed from court because of the mandatory arbitration agreement. But, Justice Sonia Sotomayor’s concurring opinion in that case left the last word on standing to California courts and the California legislature.

Since Viking River, California courts have issued mixed and inconsistent rulings regarding what to do with the representative PAGA claim once the employee’s individual claims are compelled to arbitration. Some courts have dismissed the representative claims. Others have stayed the representative claim while the arbitration of individual claims proceeds. 

Last week, the California Supreme Court considered that question during oral argument in Adolph v. Uber (Supreme Court Case No. S274671). A decision is expected to be issued in Adolph within 90 days. In the meantime, let’s review the key elements from the oral argument.

The Justices peppered counsel for both sides with questions during oral argument.  A number of Justices seems skeptical that staying the representative action made sense as they aggressively questioned whether a plaintiff has sufficient “skin in the game” to prosecute the representative PAGA claim after their individual PAGA claim is already resolved in arbitration. Another key issue discussed during oral argument was whether a representative PAGA claim should be stayed during the arbitration of individual claims. Adolph Counsel’s argument that a stay of a representative PAGA claim may not always be required – while conceding that Uber’s arbitration agreement expressly required a stay – was also met with skepticism by the Court. A plaintiff’s standing to bring a PAGA claim will be decided as part of the arbitration and the potential for inconsistent findings between the arbitrator and the court is precisely the type of situation in which a stay is typically granted.  

Prior PAGA decisions allow a plaintiff with minimal standing (i.e., skin in the game) to proceed with representative PAGA claims. For example, in Kim v. Reins Int’l Cal., a PAGA plaintiff who settled his individual claims in arbitration in which the settlement agreement expressly carved out settlement of the PAGA claim on a representative basis) was held to have preserved standing to prosecute the representative PAGA claim in court. In Huff v. Securitas Sec. Servs., the court held that a PAGA plaintiff has standing to bring claims on behalf of others for alleged Labor Code violations that they themselves never suffered, as long as the plaintiff suffered at least one Labor Code violation. If these prior cases providing for a minimal standing requirement and the stated legislative goal of ensuring compliance with the Labor Code are given deference by the California Supreme Court, it is likely that the Court will allow and even encourage representative PAGA claims to remain stayed in court until the resolution of the arbitration of a plaintiff’s individual claims. However, if the Court looks to formulate a more politically based solution, then a different conclusion will be drawn in the final Adolph opnion. 

In the meantime, what strategies should employers consider in defending against PAGA cases?

1. Cure alleged violations, if possible. PAGA allows employers to cure certain violations. If the initial LWDA exhaustion letter alleges claims that can be cured, employers should act quickly since they only have 33 days from the postmark date of the LWDA exhaustion letter to cure the alleged violation. A plaintiff cannot pursue PAGA claims if they have been timely cured. So, early evaluation of initial LWDA exhaustion letters is key.
2. Evaluate whether to compel arbitration. If there is an arbitration agreement with employees providing for individual arbitration of claims, including individual PAGA claims, consider whether it is best to proceed in arbitration or not.  

If California employers that are faced with PAGA claims by employees who have signed mandatory arbitration agreements proceed in individual arbitration and the PAGA representative claim is stayed (or later refiled) and the plaintiff is successful in arbitration, then employers may face an uphill battle with respect to those claims on the representative PAGA claim, although the employer could raise factual and legal defenses as to how any alleged violation suffered by the PAGA representative was not suffered by all or most of the “aggrieved employees” s/he seeks to represent. However, California employers should consider and weigh the heightened exposure because the number of pay periods upon which PAGA penalties can be imposed will likely increase during the time the case was stayed pending the arbitration. So, in those cases where a plaintiff can demonstrate a clear violation and individual defenses may be challenging, it actually may be in the employer’s best and most economical interest to proceed to early resolution rather than delay the process by compelling individual arbitration.

If an evaluation of a plaintiff’s allegations, timecards, and pay records does not establish a clear violation, then compelling arbitration while the representative PAGA claim is stayed is likely the most cost effective way of resolving whether plaintiff has standing, while at the same time avoiding broad and expensive discovery as to other employees.

In short, just because an employer can compel arbitration doesn’t necessarily mean they should.  PAGA litigation is complex. Although a thorough and early evaluation of claims can be costly, it often helps save significant litigation costs in the long run.