In July 2023, the California Supreme Court made a critical decision in favor of Uber drivers and other workers statewide, declaring that employees can file class-action lawsuits against their employers even if they had signed arbitration agreements for individual disputes.
The ruling came in the case Erik Adolph v. Uber Technologies Inc., where the plaintiff argued that UberEats drivers were misclassified as independent contractors instead of employees. He filed his class action lawsuit in 2019 under California’s Private Attorney General Act (PAGA), which permits individual workers to sue their employers on behalf of the state and keep a quarter of the proceeds if they win.
Uber attempted to get Erik Adolph’s case dismissed because he had signed an arbitration agreement when he first began driving for the company. The plaintiff fought back, arguing that PAGA permitted him to file a representative lawsuit even if he had waived his individual right to sue.
The case finally made it to the California Supreme Court four years after it was first filed and one year after the U.S. Supreme Court issued a related ruling in the case Viking River Cruises, Inc. v. Moriana. In 2022, the federal court ruled that PAGA does not permit individuals to sue if they signed arbitration agreements.
However, in the Erik Adolph case, the California Supreme Court chose to add nuance to this decision. The justices unanimously agreed that arbitration clauses do not override employees’ rights to file representative claims under PAGA.
On an individual level, this means that Erik Adolph’s employee misclassification lawsuit can proceed, potentially helping tens of thousands of California rideshare and gig economy workers gain benefits guaranteed to standard employees. More broadly, this decision permits employees statewide to hold their employers accountable for violating their rights without being forced into arbitration.
The Conflict Between Arbitration Clauses vs. PAGA Claims
PAGA is a law unique to California. The state has the highest population in the country, with more than 39 million residents. It also has some of the most in-depth workers’ rights laws, from strict wage and hour requirements to health benefit regulations to anti-discrimination initiatives. This combination of high standards and a large population means that the state’s Labor and Workforce Development Agency (LWDA) has historically struggled to keep up with the sheer number of labor violations.
PAGA was passed to take some of this burden off of the LWDA. The law incentivizes workers to file and litigate representative claims on behalf of the LWDA and their colleagues. If a PAGA claim succeeds, the plaintiff keeps a quarter of the damages, while the remainder goes to the LWDA to fund further investigations. Due to the scope of the average PAGA claim, successful plaintiffs often receive significant damages, which are divided among the affected employees.
The problem is that many, if not most, employment contracts in California require workers to waive their right to sue in favor of mandatory arbitration. Corporate advocates for arbitration clauses argue that this takes the burden off the court system and leads to faster results, helping workers get their money faster. However, arbitration has several known drawbacks for employees:
- Lack of accountability: Arbitration is not a matter of public record, and workers are often required to sign non-disclosure agreements preventing them from discussing the results.
- No opportunity to appeal: Arbitrators are not part of the court system, and their decisions are usually final. There is very little opportunity to appeal an unfair decision.
- Bias against workers: While arbitrators are supposed to be unbiased, there is a well-known trend of these professionals being biased in favor of the companies that hire them, making it difficult for workers to achieve fair outcomes.
This is why the California Supreme Court’s decision to permit representative PAGA claims despite an arbitration clause is so important. Workers can file these claims on behalf of their colleagues under PAGA even if they have waived their right to sue for themselves.
PAGA Representative Lawsuits vs. Class-Action Employment Lawsuits
It’s important to note that the Erik Adolph ruling does not permit workers to file class-action lawsuits. Instead, they allow representative lawsuits, and only in a strict set of circumstances. Let’s break down the differences between PAGA lawsuits and class-action lawsuits:
| Matters | Class-Action Claims | PAGA Claims |
| Circumstances | One or more plaintiffs file a claim on behalf of a “class” of similarly situated people. | One or more plaintiffs file a claim on behalf of the LWDA as a “private attorney general.” |
| Certification Required | Yes | No |
| Permitted Issues | Any claim that involves a class of people facing similar harm due to violations of their rights, such as unpaid wages, | Violations that would incur a civil penalty if the LWDA initiated an enforcement action against the defendant, such as health and safety violations, whistleblower retaliation, and misclassification of workers |
| Potential Damages | Compensation for financial losses, including unpaid wages and benefits, back pay, and potentially pain and suffering. | Restricted to “civil penalties,” such as fines and legal fees, and does not permit the recovery of unpaid wages or benefits. |
| Division of Damages | All damages are split among the class represented in the lawsuit after legal fees are covered. | One-quarter of damages are split among the represented individuals, while three-quarters go to the LWDA. Note that in a standard LWDA enforcement action, no civil penalties go to the individuals. |
| Statute of Limitations | Three years | One year |
Should You Consider a PAGA Lawsuit Against Your Employer?
The decision to permit PAGA representative claims despite arbitration agreements benefits all California workers. However, not every dispute meets the criteria to begin a PAGA claim. If you believe your employment dispute might be eligible under PAGA, talk to the expert employment attorneys at the Law Offices of Todd M. Friedman, P.C. We have won nearly a billion dollars for people mistreated by their employers. We can help you determine if you have a claim. Schedule your consultation today to find out more.
