The California Court of Appeal dealt another blow to California employers—employees who’s individual PAGA claims are compelled to arbitration now maintain standing to bring their representative PAGA claims in court. Put simply, an arbitration agreement no longer saves you from a PAGA claim. In doing so, the Court of Appeal, in Galarsa v. Dolgen California, LLC, rejected the United States Supreme Court’s decision in Viking River Cruises that instructed courts to dismiss representative PAGA claims when individual PAGA claims were compelled to arbitration.
But how can the Court of Appeal overrule the U.S. Supreme Court?
They are not “overruling” the U.S. Supreme Court, but they don’t have to listen to it for PAGA purposes. Because PAGA is a matter of state law, its courts are not bound by federal holdings with respect to PAGA (including, e.g., the U.S. Supreme Court).
What does it all mean?
Assume your counsel correctly told you late last year to roll out new or revised arbitration agreements with an “individual PAGA waiver” because of this great new ruling in Viking River. They were excited—finally, a solution to PAGA shakedowns. They explained to you that Viking River essentially made it so you don’t have to worry about the large and expensive PAGA claims anymore! What a relief! . . . Enter the Court of Appeals. Now your counsel, excitement dissipated and morose, calls you and tells you those PAGA claims are a thing again. Essentially, the California courts held that representative PAGA claims can proceed in court even though the individual PAGA claim is in arbitration. For now, plaintiff’s lawyers will continue to use PAGA claims to enhance settlements for ticky-tack wage-and-hour violations.
There’s still hope.
All is not lost. The California Supreme Court, in Adolph v. Uber Technologies, is currently deciding whether representative PAGA claims should be dismissed after individual PAGA claims are compelled to arbitration. The California Supreme Court’s ruling in Adolph will be the final say on the issue. We expect that ruling this year. Keep your fingers crossed.
What to do going forward?
If you don’t have an arbitration agreement—get one in place. Continue including individual PAGA waivers in your arbitration agreements. Keep hope that the California Supreme Court makes a more sensible ruling and sides with the U.S. Supreme Court. Of course, continue to monitor wage-and-hour compliance, and conduct regular time and pay audits.