Waiting for Ruling on California’s PAGA Law Might Cost You

When the US Supreme Court ruled in June that individual claims under California’s Private Attorneys General Act must be arbitrated if a valid arbitration agreement between the parties exists, it left several unanswered questions.

The Supreme Court in Viking River Cruises held that plaintiffs can be forced to bring their individual PAGA claims to arbitration, and that they thereafter lack standing to pursue representative PAGA actions in state court. The court, however, welcomed California’s highest court to weigh in on this latter issue concerning representative PAGA claims.

Enacted by California lawmakers in 2004, PAGA deputized employees to bring qui tam actions on behalf of the state against violators of wage-hour, workplace safety, and other workplace laws. In addition to individual claims, employees were empowered to bring non-individual or representative actions on behalf of other workers.

Now all eyes are on California’s Supreme Court, which will decide in Adolph v Uber Technologies whether an employee who has been compelled pursuant to Viking River to arbitrate her individual PAGA claim is thereby precluded from pursuing a larger representative PAGA claim in court.

With so much riding on the court’s decision, parties now pursuing settlement of PAGA claims may be tempted to wait. That could be a big mistake.

Nothing Is Clear

There have been roughly 90 orders on motions to compel arbitration, with decisions across the board.

So how do litigants navigate the current settlement terrain? It depends on case particulars, but right now a settlement in the hand may be worth two lawsuits in the bush.

Because it is unclear how Adolph will be decided, this is the optimal time to negotiate a settlement. Both sides have the most leverage and the least to lose by compromising.

Why Settle if Agreement Silent on PAGA?

When an arbitration agreement is silent or unclear about resolving PAGA claims, representative arbitration hasn’t historically been an option. The US Supreme Court ruled that a court could not compel class arbitration when the agreement was silent or ambiguous on the matter, and lower courts have applied the same rule when the agreement was silent or ambiguous regarding PAGA.

Such an agreement, the Supreme Court said, did not manifest sufficient consent under the Federal Arbitration Act to submit the claim to class/representative arbitration.

Notwithstanding these decisions, California’s Second Appellate District recently ruled that when an employee and employer agree to arbitrate “all disputes” arising from the plaintiff’s employment and there is no mention or waiver of PAGA claims, the entire claim is arbitrable.

Accordingly, when parties are considering whether a PAGA settlement makes sense, they should remember that the language of the arbitration agreement is everything. If there is any ambiguity in the agreement about PAGA claims, settlement discussions make even more sense.

Agreements With PAGA Waivers

Parties should not rule out a representative PAGA settlement even when the arbitration agreement appears to have a valid PAGA waiver. Although the holding in Viking River currently stands, a decision in Adolph could turn that holding on its head, at least in California.

Since Viking River, only a small minority of the rulings affecting PAGA have ruled in line with the holding, dismissing the representative PAGA claim. The vast majority have compelled the individual PAGA claim to arbitration and stayed the representative PAGA claim pending resolution of the individual arbitration or a decision in Adolph.

But some courts have gone the other way, allowing the PAGA representative claims to proceed simultaneously with the individual PAGA claim or requiring that the entire PAGA claim be arbitrated.

Given the current divide in rulings on the issue and the uncertainty of how the Adolph court will rule, the wisest course for both sides may be to work toward settlement at all costs.

Why Settle if PAGA Action Is Stayed?

Imagine a case where arbitration has been compelled on the individual PAGA claim but the representative PAGA claim has been stayed in state court. What should the parties consider when negotiating a settlement?

First, they must consider whether they want to settle the entire PAGA claim or just the individual claim. An employer who agrees to settle just the individual claim takes a risk that, should the stay be lifted on the representative claim, the plaintiff might still proceed with a nonindividual action.

Thus, it may make sense to attempt to settle all claims arising from the same acts, including nonindividual PAGA claims.

Additionally, the parties should consider that a decision in the plaintiff’s favor on the individual PAGA claim could allow nonparty employees to invoke collateral estoppel and seek remedies other than civil penalties for the same violations. Such a ruling in the plaintiff’s favor could also fall into the hands of other decisionmakers in separate cases involving the same claims filed by other aggrieved employees and have an influential effect.

And even if the employer prevails on the individual PAGA claim in arbitration, such a judgment would not preclude nonparty employees from bringing their own claims. Such individuals had neither notice nor an opportunity to have their claims heard and are not bound as to prior remedies other than civil penalties.

Pending Adolph, there is little downside to settling PAGA claims, regardless of the terms of arbitration agreements. Once the court rules, it may be too costly or too late for parties to obtain the outcomes they seek.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Monique Ngo-Bonnici is a neutral with Signature Resolution who primarily handles employment law cases. Previously, she served as chair of Winston & Strawn’s Los Angeles and Silicon Valley labor and employment practices.