Uber Case Threatens California’s Crackdown on Unpaid Wages

A case pending in front of the California Supreme Court could further hamper how the state enforces unpaid wage complaints, retaliation threats, and other workplace violations as it struggles with a backlog of claims, according to the state’s labor commissioner.

The upcoming state Supreme Court case in Adolph v. Uber Techs. Inc. will address which kinds of claims under the Private Attorneys General Act, or PAGA, are subject to arbitration if an employee signed such an agreement. The justices will determine whether Uber can force its drivers to arbitrate claims that they were misclassified as contractors—rather than litigate in court—and will attempt to settle the question of which plaintiffs have standing to sue under PAGA.

A ruling in favor of settling those accusations through arbitration would lead to “less private enforcement, which would then create a bigger burden on government enforcement,” said Labor Commissioner Lilia García-Brower in a Feb. 13 interview. The case comes at a critical time for the labor commissioner’s office, which is dealing with a staffing shortage and an estimated backlog of 44,000 wage claim cases.

The 20-year-old law authorizes employees to collect civil penalties for violations against themselves and their coworkers on behalf of the state labor commissioner. This allows private lawyers to represent dozens, hundreds, or even thousands of employees, without the certification requirements of a class action.

“We are eager to see what happens” with the case, said García-Brower, who is responsible for ensuring that employers follow the law in paying their workers. The state Labor & Workforce Development Agency (LWDA) collects 75% of the penalties from PAGA settlements, with attorneys and plaintiffs pocketing the remaining 25%.

The case centers on whether plaintiffs have standing to bring “non-individual” claims on behalf of other employees once their individual claims enter arbitration.

Big Case Backlog

Gov. Gavin Newsom’s (D) proposed budget for the next fiscal year would set aside $11.7 million for the Department of Industrial Relations, which houses the labor commissioner’s office, to hire 42 people specifically for processing those claims.

As the number of annual wage claims increases into the tens of thousands, processing those claims has become increasingly complex due to the web of new labor laws in effect, according to the Department of Industrial Relations.

The head of the state’s top labor organization calls the situation a “state of emergency.”

“Businesses have decided to ignore, blatantly ignore, a lot of labor laws,” said Lorena Gonzalez Fletcher, executive secretary-treasurer of the California Labor Federation. “The Labor Commissioner, the one spot in state government that’s supposed to be able to be a landing spot for workers who have no other resource, is completely overworked and understaffed.”

A ruling in favor of Uber allowing claims to be split into individual and non-individual components could make it more difficult to bring PAGA cases forward, said Lauren Teukolsky, a plaintiff’s lawyer and founder of Teukolsky Law in Pasadena, Calif.

“It’s going to make PAGA litigation much more cumbersome,” she said. Teukolsky expects the court to rule this summer or in early fall.

The labor commissioner is also in discussions with over 1,000 employers to implement a 2021 law intended to shield warehouse workers at Amazon.com Inc. and other online retailers from work quotas that infringe on their labor rights (AB 701). Several management-side attorneys expected that statute to be enforced via PAGA claims after Newsom signed it into law.

The office has hired 352 of the current 472 staff members in the last two years, García-Brower said. As California faces a multibillion-dollar budget shortfall next year, she said her office will have to do more with fewer resources. For example, the agency is contacting employers as part of an “early engagement” program to resolve a dispute before an employee files a formal claim and kicks off a long, potentially complicated process.

“Workers and employers want the same thing,” she said. “They want to be able to have good stable livelihoods where they are respected and safe at work.”

Gonzalez Fletcher contends that there are problems with how some attorneys use PAGA. They occasionally pay themselves before workers get any restitution of unpaid wages or negotiate a settlement without addressing the underlying violation, such as the misclassification of workers.

However, “it would be unfortunate to take away any tool that workers had to try to hold employers accountable,” she said.

Business organizations say the law created a cottage industry of trial lawyers who hit businesses with PAGA notices and pressure them to settle.

Limiting arbitration “opens up a huge amount of litigation, from our perspective, against employers in California,” said Jennifer Barrera, president and CEO of the California Chamber of Commerce, who is backing a 2024 ballot initiative to roll back PAGA.

Legislation

Barrera disagrees with García-Brower that requiring those labor claims be arbitrated, rather than litigated, will weaken the enforcement of workplace violations.

“Arbitration is just an alternative forum in which to have the dispute resolved,” she said.

Teukolsky said that arbitration comes at a cost for employees because they waive their civil rights, such as the right to a jury trial and the right to an appeal, when they are asked to sign an arbitration agreement.

The U.S. Supreme Court ruled last year in Viking River Cruises, Inc. v. Moriana that the Federal Arbitration Act preempts part of a key 2014 California Supreme Court opinion on the question of whether to proceed to arbitration. In that earlier case, Iskanian v. CLS Transportation Los Angeles LLC, the court ruled that PAGA “representative” claims on behalf of the state and other workers couldn’t be waived in favor of arbitration.

The US Supreme Court decision, on its surface, represents a win for businesses. But Justice Sonia Sotomayor wrote in a concurring opinion said that California courts should have the final say in whether employers can force arbitration for representative claims, which gives Teukolsky and other defenders of PAGA a sense of optimism that the state’s top court will side with them this time.

If the court sides with the plaintiffs, the decision could compel the legislature to pass a bill to formally enshrine any new provisions into the state labor code, state Sen. Dave Cortese (D), the chair of the Senate Labor, Public Employment, and Retirement Committee, said in an interview.

“Any bill I introduce will be to ensure the rights of workers to hold bad actors accountable,” he said.