Arbitration agreements are a staple in employment contracts. They select a clear, cost-effective forum for resolving employment disputes.
Earlier this year, the federal Ninth Circuit Court of Appeals held that employers can require employees to sign mandatory arbitration agreements as a condition of employment. The Federal Arbitration Act recognizes the validity of those agreements.
However, gray areas remained with regard to an important category of employee claims: nonindividual claims under the California Private Attorneys General Act (PAGA). PAGA gives employees the right to file suit against employers on behalf of themselves, other employees and the State of California for Labor Code violations. It essentially gives them the power to act as private attorneys general in enforcing the Labor Code. These “non-individual” claims expose employers to costly litigation and stiff potential penalties.
When an arbitration agreement is in place, does it apply to those claims, too?
The California Supreme Court weighs in
In Adolph v. Uber Technologies, Inc., the California Supreme Court addressed this question. It held that employees can still pursue PAGA lawsuits in spite of mandatory arbitration agreements.
However, employers can request the court to stay – that is, halt proceedings – in PAGA lawsuits while arbitration is pending. Arbitration in these cases gives employers a critical opportunity to dispute the employee’s individual claim. If the employer succeeds, and the arbitrator finds that the employee isn’t an “aggrieved employee” for purposes of PAGA, the employee will not have standing to further pursue the PAGA claim in court.
The future of PAGA
The decision in Adolf may only be relevant in the short term, as the future of PAGA is in doubt. A ballot initiative slated for November 2024 will give voters the opportunity to repeal PAGA and replace it with an alternative framework, The California Fair Pay and Employer Accountability Act. If passed, this new framework would eliminate nonindividual employee claims and give employers more opportunities to address and prevent Labor Code violations without the risk of costly litigation.