California Employment Law Update

SCOTUS Provides Further Support For Staying PAGA Court Actions Pending Arbitration

With Adolph v. Uber Technologies, Inc. in the books, it is now clear that Private Attorneys General Act (PAGA) plaintiffs do not lose standing to pursue representative claims in court when their individual PAGA claims are sent to arbitration.  In Adolph’s wake, disputes may arise regarding whether the representative court action should be stayed pending the individual arbitration.  Adolph strongly suggested a stay is appropriate in that circumstance.

The recent U.S. Supreme Court decision in Coinbase, Inc. v. Bielski provides further support for that approach.  Coinbase concerned the circumstance where a party takes an interlocutory appeal from an order denying a motion to compel arbitration, which the Federal Arbitration Act permits as a matter of right.  9 U.S.C. § 16(a).  The Court considered the question of “whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing,” and concluded, “The answer is yes.”  Slip op. at 1.

The similarities between the circumstance in Coinbase and the PAGA situation described above are striking.  A stay pending an appeal of an order denying arbitration is appropriate because if the appellant prevails on appeal, there will be no court action.  Similarly, a stay of non-individual PAGA claims in court pending the arbitration of individual PAGA claims is appropriate because only an “aggrieved employee” has standing to bring a PAGA claim.  Cal. Lab. Code § 2699(a).  Therefore, if the plaintiff loses in arbitration, she has no standing to pursue a court action.

Accordingly, while the Coinbase ruling would not bind courts when a PAGA claim is compelled to arbitration, the reasons underpinning it are compelling and apply equally to PAGA cases:

  • Avoiding unseemly conflicts between tribunals: “[I]t makes no sense for trial to go forward while the court of appeals cogitates on whether there should be one.” Slip op. at 4 (quoting Apostol v. Gallion, 870 F.2d 1335, 1338 (7th Cir. 1989)).  Similarly, it makes no sense for a non-individual PAGA case to proceed while an arbitrator decides the threshold question of whether the plaintiff has standing to bring PAGA claims.
  • Preserving the contracted-for benefits of arbitration: “If the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost—even if the court of appeals later concluded that the case actually had belonged in arbitration all along.” Slip op. at 6.  Similarly, if a defendant were forced to defend non-individual PAGA claims in court, the benefits of arbitration would be lost of the arbitrator decided the plaintiff had no standing to bring PAGA claims.
  • Avoiding “blackmail settlements”: “Absent a stay, parties also could be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration. That potential for coercion is especially pronounced in class actions, where the possibility of colossal liability can lead to what Judge Friendly called ‘blackmail settlements.’”  Slip op. at 6 (quoting H. Friendly, Federal Jurisdiction: A General View 120 (1973)).  “Blackmail settlements” are equally concerning in PAGA actions, given the potential for statutory penalties of as much as $100 or more per pay period.
  • Preserving scarce judicial resources: “From the Judiciary’s institutional perspective, moreover, allowing a case to proceed simultaneously in the district court and the court of appeals creates the possibility that the district court will waste scarce judicial resources—which could be devoted to other pressing criminal or civil matters—on a dispute that will ultimately head to arbitration in any event,” which “represents the ‘worst possible outcome’ for parties and the courts[.]” Slip op. at 6 (quoting Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997)).  Similarly, judicial resources are wasted if a trial court proceeds with PAGA claims that the arbitrator ultimately rules lack standing.

Adolph Parts With Viking River, Opening Path for Arbitration-Bound Plaintiffs to Pursue PAGA Claims in Court

On July 17, 2023, approximately one year after the U.S. Supreme Court’s landmark decision in Viking River Cruises, the California Supreme Court issued its highly-anticipated decision in Adolph v. Uber Technologies.  The Court answered the critical question of whether a Private Attorneys General Act (PAGA) plaintiff retains their standing to pursue non-individual claims after their individual claims are compelled to arbitration. As many had predicted it would, the Court held that the answer is yes.

In Viking River Cruises, the U.S. Supreme Court held that a plaintiff may be compelled to submit an “individual” PAGA claim to arbitration—the portion of a PAGA claim seeking penalties for violations committed against the plaintiff—if the agreement is covered by the Federal Arbitration Act. The Court found that once the plaintiff’s individual PAGA claim is compelled to arbitration  and severed from the non-individual PAGA claims, state law deprives the plaintiff of standing to pursue the non-individual claims in court. However, as Justice Sotomayor observed in concurrence, state courts would “have the last word” on the meaning of state law. Since Viking River, the majority of California courts have rejected the Supreme Court’s interpretation of PAGA standing, instead choosing to stay the non-individual PAGA claim when a plaintiff’s individual claim is compelled to arbitration.

In Adolph, the Court analyzed the history and purpose of PAGA in concluding that a PAGA plaintiff does not lose their standing to pursue a non-individual claim when their individual claim is compelled to arbitration. The Court reasoned that denying a PAGA plaintiff standing to pursue the non-individual PAGA claims was inconsistent with PAGA’s purpose because it would undermine the State’s ability to deputize private plaintiffs to enforce the Labor Code, reduce state revenues, and increase state costs of enforcement.

Although the decision is a welcome development for the plaintiffs’ bar, there are also silver linings for employers. In rejecting the defendant’s argument that its holding would lead to duplicative litigation, the Court cited Adolph’s notable concessions that (1) the trial court may stay the court action pending arbitration, and (2) following arbitration, the arbitration award may be confirmed in court, at which point the arbitrator’s findings would bind the parties in the court action. We previously observed that, as a practical matter, this procedure would mean that a complete victory for the employer would end the case: a plaintiff could not lose their individual claim in arbitration and then proceed to litigate the non-individual claims in court as if nothing had happened.

Moreover, in some cases, the arbitration process may advance the employer’s defense of the court action even if the arbitrator ultimately finds the plaintiff was aggrieved. For example, in cases alleging violations in spite of a lawful policy, a PAGA plaintiff might prove liability in arbitration only by resorting to highly individualized evidence, such as disputed testimony about what the plaintiff was instructed by individual managers. If the arbitration of a single alleged Labor Code violation proves burdensome, that could be a powerful demonstration that a trial involving the claims of hundreds or thousands of individuals would be unmanageable.

The future of PAGA litigation depends in large part on how the California Supreme Court will resolve such questions of manageability.  In Estrada v. Royalty Carpet Mills, Inc., the Court is poised to decide whether courts have authority before trial to strike or limit PAGA claims as unmanageable—a question that has split Courts of Appeal.  But even Estrada, which held trial courts have found no such authority, stipulated that courts have inherent authority to limit the presentation of evidence at trial, which could make it difficult as a practical matter to prove an unmanageable claim.

With Adolph in the books, employers facing PAGA claims should carefully consider the potential benefits and drawbacks of arbitration and consult with counsel experienced in the area to ensure their rights are adequately protected.

July 2023 California Employment Law Notes

We invite you to review our newly-posted July 2023 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

View PDF

Court of Appeal Clarifies Employers’ Expense Reimbursement Obligations for Pandemic-Related Remote Work

California Labor Code section 2802 (“Section 2802”) requires employers to reimburse employees for “all necessary expenditures or losses” they incur as a “direct consequence of the discharge of … [their] duties, or … [their] obedience to the directions of the employer.”  So, in March 2020, when Governor Newsom issued a broad stay-at-home order requiring all non-essential workers to work remotely (if possible), questions arose about who should pay for any expenses related to this government-required remote work.  And, on July 11, 2023, in Thai v. International Business Machines Corporation, California Court of Appeal Case No. A165390, the California Court of Appeal for the First Appellate District answered this question.  In its published opinion, the Court held that employers are responsible for reimbursing employees’ necessarily-incurred remote work expenses, even when the only reason they are working from home is a government order.

The plaintiff, Paul Thai (“Thai”), sued IBM on behalf of himself and similarly situated employees, alleging IBM failed to reimburse employees for expenses incurred to perform their regular job duties from home pursuant to Governor Newsom’s stay-at-home order.  Thai argued that, to accomplish his job duties from home, he required internet access, telephone service, a telephone headset, and a computer and accessories, all of which were items IBM provided to its employees in its offices.  IBM argued that the Governor’s order was an intervening cause of the work-from-home expenses, foreclosing the allegation that IBM was the direct cause of the expenses and absolving IBM of liability under Section 2802.  The trial court sustained IBM’s demurrer, concluding the stay-at-home order was an “intervening cause precluding direct causation by IBM,” and entered judgment in IBM’s favor.

On appeal, however, a three-justice panel unanimously reversed the trial court’s ruling.  The Court explained that, per the plain language of Section 2802(a), an employer’s obligation to reimburse work expenses “does not turn on whether the employer’s order was the proximate cause of the expenses.”  Rather, “it turns on whether the expenses were actually due to performance of the employee’s duties.”  Thus, whether employees incurred business expenses while working at home following the government’s stay-at-home order did not change an employer’s reimbursement obligation under Section 2802.

Thai is a reminder that Section 2802 requires employers to reimburse an employee for all necessary expenses that are a direct consequence of the employee’s job duties, regardless of whether the expenses were directly caused by the employer.  Although government-imposed stay-at-home orders are, hopefully, a thing of the past, Thai has potential implications beyond the COVID-19 pandemic (or future pandemics).  And, while the California Supreme Court ultimately may need to clarify the law with respect to employers’ reimbursement obligations under Section 2802, until that happens, employers should consult with skilled employment counsel about their reimbursement obligations.

West Hollywood Wins The Gold Medal For Highest Minimum Wage In The Nation — $19.08!

The so-called “Fight for 15” – those widespread protests for a $15 minimum wage – are so passé now!

As of July 1, 2023, West Hollywood takes the crown for the highest mandated minimum wage in the United States at $19.08.  Why they didn’t just top it off at $20 is anyone’s guess.  (Not to be completely outmatched, several other localities raised their minimum wage as of July 1, too, as we recently reported here.)

Although West Hollywood has now adopted a single, across-the-board minimum wage for those employers who still happen to be doing business within the city limits, the city council previously tinkered with different minimum wages based on employer size (50 or more employees meant a higher minimum wage) and set a still higher minimum wage for hotel employees – based most likely on the assumption it’s harder for a hotel to flee the jurisdiction than some other businesses.  Other localities have set their own employer-size benchmarks or have established different rates for different types of employers (e.g., nonprofit organizations, franchisees) or employees (e.g., on-call employees vs. government-supported employees).

However, West Hollywood has also enacted some limited relief for certain employers.  Businesses are eligible to apply for a one-year waiver if they can demonstrate that complying with the new rate would force the business to “file bankruptcy[,] shutdown, reduce its workforce by more than twenty percent (20%), or curtail its Employees’ total hours by more than thirty percent.”

One West Hollywood restaurant owner reported to the Los Angeles Times since the city began raising the minimum wage this year (first to $17.50 and now to $19.08) his restaurant lost $100,000 just in the first quarter of 2023, and that he has been forced to reduce his staff by one-third from 120 to 80 employees and has cut 1,000 working hours. Another establishment reduced its bar staff from 30 to 22 employees.

We can’t help but think of Mao Zedong, who famously said, “Let a hundred [minimum wage laws] bloom,” as the growing patchwork of such laws continues to expand in scope and complexity with absolutely no consideration of the impact such confusing and conflicting laws might have upon law-abiding employers who are just trying to keep their businesses afloat.  To name just one example, there are parts of Woodbury Avenue in Los Angeles County where businesses on one side of the street are subject to a minimum wage that is three cents higher than on the other side.

Many of the dozens of local governments that have enacted their own very special minimum wage laws have indexing provisions so that the minimum wage rises annually to adjust for inflation.  Other localities have made frequent amendments to their ordinances to account for inflation or make other changes.  Thus, employers must be vigilant to ensure they remain on top of changes to local laws.

Crisis Averted: California Employers Are Not Liable for “Take-Home” COVID Cases.

Last week, the California Supreme Court unanimously ruled that employers are not liable to nonemployees who contract COVID-19 from employee household members that bring the virus home from their workplace, because “[a]n employer does not owe a duty of care under California law to prevent the spread of COVID-19 to employees’ household members.”  Kuciemba v. Victory Woodworks, Inc., No. S274191 (Cal. July 6, 2023), slip op. at 49.

We previously covered the Kuciemba action here, but as a reminder, the Ninth Circuit certified two questions to the California Supreme Court: (1) If an employee contracts COVID-19 at the workplace and brings the virus home to a spouse, does the California Workers’ Compensation Act (Lab. Code, § 3200 et seq.) (the “WCA”) bar the spouse’s negligence claim against the employer, and (2) Does an employer owe a duty of care under California law to prevent the spread of COVID-19 to employees’ household members?

The court answered the first question in the plaintiff’s favor, concluding “take home” COVID-19 claims do not fall under the Workers’ Compensation regime and therefore are not barred by the exclusivity provisions of the WCA.  However, as a practical matter, the court’s ruling on the second question—that employers owe no such duty of care—bars negligence claims for COVID-19 infection by members of an employee’s household.

Public policy concerns drove the court’s analysis.  As it explained:

Imposing on employers a tort duty to each employee’s household members to prevent the spread of this highly transmissible virus would throw open the courthouse doors to a deluge of lawsuits that would be both hard to prove and difficult to cull early in the proceedings. Although it is foreseeable that employees infected at work will carry the virus home and infect their loved ones, the dramatic expansion of liability plaintiffs’ suit envisions has the potential to destroy businesses and curtail, if not outright end, the provision of essential public services. These are the type of ‘policy considerations [that] dictate a cause of action should not be sanctioned no matter how foreseeable the risk.’  Slip op. at 46 (quoting Elden v. Sheldon, 46 Cal. 3d 267, 274 (1988)).

Although the California Supreme Court is a notoriously difficult venue for employers (as we have frequently observed), in Kuciemba, the court took a pragmatic approach to avoiding a catastrophe for employers and the judicial system alike.  Employers of all kinds can breathe a sigh of relief.

If We’ve Said It Once, We’ve Said It 1,000 Times… Pay Those Arbitration Fees Early And Often!

Many California employers and their counsel remain blissfully ignorant of the latest “gotcha” law in California, which can easily derail an otherwise perfectly planned arbitration.  Back in 2019, the California legislature, an implacable foe of arbitration agreements, set a booby trap for unsuspecting employers by requiring the timely payment of arbitration fees and costs on pain of “waiving” the right to arbitrate.  (The same gotcha applies to consumer arbitrations.)

Specifically, Section 1281.98(a)(1) of the Code of Civil Procedure provides that in an employment or consumer arbitration, if the drafting party (i.e., the defendant) does not pay the invoiced costs and fees to the arbitration provider within 30 days of the due date, that party “is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration.”  It bears noting that the employee/consumer relying upon this statute to torpedo the arbitration need not plead or prove any form of harm or damage resulting from this so-called “material breach” of the arbitration agreement.

In Cvejic v. Skyview Capital, LLC, yet another appellate court applied this unforgiving statute in an employment case and found that by failing to pay the required fees within 30 days of the due date, the employer was in “material breach of the arbitration agreement” even though the arbitration panel actually set a later payment deadline after being notified of Skyview’s failure to pay.  The court held that the new deadline did not retroactively “cure” Skyview’s material breach and subsequent triggering of Section 1281.98.

This is just the most recent court to so hold, following a similar 2022 decision by a state appellate court on which we previously reported.

While this latest legislative attack on arbitration may someday get struck down by a federal court that is less hostile to arbitration (see, e.g., Chamber of Commerce v. Bonta, the recent opinion from the Ninth Circuit striking down Section 432.6 of the Labor Code), until that happens, employers and their counsel should be vigilant in making timely payment of the arbitration fees and costs as soon as they get the bill!

EEOC Releases New Employer Guidance On Pregnant Workers Fairness Act

As we covered here, the Pregnant Workers Fairness Act (PWFA) is effective today! As a reminder, the PWFA extends the requirements of the ADA to employees with known limitations related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions. The EEOC stated that they will begin accepting charges of discrimination for incidents occurring on or after June 27, 2023.

Employers should review the EEOC’s newly published guidance. The EEOC has also prepared an infographic for employers, an informational poster, and tips directed at employees.  Supervisor training is recommended by the EEOC to ensure they are ready when they receive accommodation requests.

Don’t Expect to Discharge That PAGA Debt in Bankruptcy

As we have written here on multiple occasions, the Private Attorneys General Act (PAGA) disadvantages employers in several ways.  Despite permitting recovery similar to what might be obtained in a class action, class certification rules do not apply and it is an open question whether courts can even limit an unmanageable claim before trial.  Plaintiffs may pursue a PAGA claim even after settling their individual claims for the same underlying conduct.  “PAGA-only” actions are nearly impossible to remove to federal court.  And a recent case illustrates another disadvantage: PAGA penalties may largely survive bankruptcy.

Under PAGA, 75% of any penalties awarded are paid to the Labor and Workforce Development Agency (LWDA) for “enforcement of labor laws” and “education of employers and employees about their rights and responsibilities” under the Labor Code.  Cal. Lab. Code § 2699(i).  In In re Patacsil, 2023 WL 3964908 (E.D. Cal. Bankr. June 9, 2023), the court held that these amounts, payable to the LWDA, fall within a statutory exception that makes certain penalties “payable to and for the benefit of a governmental unit” nondischargeable in bankruptcy.  11 U.S.C. § 523(a)(7).  Under this reasoning, individual debtors will remain on the hook for 75% of any PAGA penalties awarded against them even after emerging from bankruptcy.

However, the decision also offered two silver linings for employers.  The court held that the other 25% of the penalty (payable to the “aggrieved employees”) and any statutory attorneys’ fees awarded do not fall within the Section 523(a)(7) exception, because they are payable to private individuals or entities, not the government.  Patacsil, 2023 WL 3964908, at *9-10.  It also held that the PAGA judgment did not fall within Section 523(a)(6), which does not permit discharge of debts for “willful and malicious injury.”  Id. at *5.  Had it held otherwise, the entire judgment may have been deemed nondischargeable, rather than just the 75% of penalties payable to the government.

In practice, it may be difficult for plaintiffs to recover PAGA penalties from individual debtors in bankruptcy.  Moreover, courts should take care to avoid this scenario in the first place by exercising their discretion to reduce PAGA penalties when an award would otherwise be “confiscatory.”  Cal. Lab. Code § 2699(e)(2).  However, the Patacsil case illustrates yet another way PAGA stacks the deck against employers.

Under-the-Radar Concessions in Adolph Could Shorten PAGA’s Parade Of Horribles

On May 10, 2023, the California Supreme Court heard oral argument in Adolph v. Uber Technologies, Inc., a closely watched case that will decide whether a Private Attorneys General Act (PAGA) plaintiff loses standing to pursue a representative claim when their individual PAGA claim is compelled to arbitration.

Observers hoping for a sign that the court was inclined to rule for the employer may have come away disappointed, as the justices mostly kept their cards close to their vests.  (One of the few highlights was Chief Justice Guerrero’s pointed questions about how the plaintiff’s interpretation of “aggrieved employee” could be harmonized with other sections of the statute—an argument we previewed here.)

However, Adolph made two notable concessions during argument that could take two of the worst-case scenarios for employers off the table.

First, Adolph conceded that if a plaintiff loses on the merits in individual arbitration—that is, the arbitrator finds the plaintiff is not an aggrieved employee—the arbitrator’s finding would preclude the plaintiff’s representative claim once confirmed in court.  Conflicting decisions from the Court of Appeals regarding the preclusive effect of an arbitration award in PAGA cases raised the specter of a plaintiff losing in individual arbitration, then pursuing a representative claim in court as if the arbitration never happened.  Adolph did not attempt to argue that the Supreme Court should endorse such an outcome.

Second, Adolph acknowledged that, except in unusual cases, a plaintiff’s non-individual PAGA claims should be stayed pending the arbitration of their individual PAGA claims.  A recent string of Court of Appeal decisions on the standing issue was mostly silent on whether the court action should be stayed when a PAGA plaintiff’s individual claims are compelled to arbitration.

If the Supreme Court rules for Adolph and allows plaintiffs to pursue non-individual PAGA claims in court even after being compelled to arbitration, it would be well-advised to incorporate Adolph’s concessions into its decision.  When an employee has agreed to bring all employment-related claims in individual arbitration, at a minimum the employer should be able to expect the employee to pursue individual arbitration first, and for the case to be over if the employee loses in that forum.  Thus, employers can hold out hope that even a bad outcome in Adolph will come with some reasonable guardrails.


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