Arbitration Agreements in the Wake of Adolf v. Uber Technologies, Inc.

The California Supreme Court just handed down its long-awaited decision in Adolf v. Uber Technologies, Inc., (“Uber”), and you are probably wondering how that ruling affects the arbitration agreements you have in place with your employees.

The short answer is: it doesn’t. Exhale!

The issue addressed in the Uber case was not the enforceability of arbitration agreements or contractual waivers of one’s right to pursue claims under California’s Private Attorney General Act of 2004 ("PAGA"). The legal landscape governing those issues in California largely remains unchanged following Uber. Check out Greg Wilbur’s article for more on that. Instead, our state’s highest court was asked to address the issue of an employee’s "standing" – or eligibility, if you will – to pursue representative PAGA claims in superior court despite his/her individual PAGA claims being compelled to arbitration.

The Court said that, as long as the person pursuing the PAGA claims was an employee against whom one or more violations of the labor code was/were committed (we call this an "aggrieved employee"), he/she has standing to represent their fellow employees in court in any PAGA representative action. This remains true even if the aggrieved employee is compelled to arbitrate his/her individual PAGA claims pursuant to an enforceable arbitration agreement governed by the Federal Arbitration Act. In other words, a single PAGA action can now proceed simultaneously in two different forums. When this happens, the representative action is typically stayed – or paused – while the arbitration on the individual matter plays out.

Importantly for employers, the Court in Uber pointed out that, if an arbitrator rules that the employee was not subjected to one or more violations of the labor code (i.e. not "aggrieved"), then the employee loses standing to prosecute his/her representative claims. Thus, employers can avoid having to litigate representative PAGA claims in court by proving to the arbitrator, up front, that the purportedly aggrieved employee was not aggrieved after all. This is a concept called "issue preclusion." But beware: a ruling that violations did occur could be similarly binding and may potentially have a very negative effect on the pending representative action. Of course, the only way to obtain a favorable ruling in arbitration and benefit from issue preclusion is to prove to the arbitrator that you complied with the law in the first place.

So, what does all of this mean for employers?

First, if your arbitration agreement has been updated by an employment law specialist since August of 2022, it’s probably still enforceable and does not need to be changed as a result of Uber. If it hasn’t been updated since last August, you should immediately consult with your employment law counsel to have it reviewed and revised as necessary.

Second, ask that your employment lawyer(s) conduct an audit of your employment policies and practices, employee files/documents and recordkeeping habits. CA labor laws are a moving target and Uber highlights the importance of not just complying with those laws, but also maintaining detailed and accurate records establishing that you have done so. You can never prevent a lawsuit from being filed. You can only prepare yourself to win it once it has been. The best way to set yourself up for success is by working closely as a team with your employment lawyers and getting things right the first time. For employers who do not yet have trusted counsel, MS&A is always pleased to assist with your advice and/or litigation defense needs.