Uber Can’t Compel Arbitration of Driver’s PAGA Claim

By Joanne Deschenaux June 4, 2021
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An Uber driver who alleged wage violations under the California Private Attorneys General Act (PAGA) could not be forced into arbitration, a state appeals court ruled.

The driver had signed a contract confirming that she was an independent contractor and agreeing to let an arbitrator decide any disputes about the enforceability or validity of the contract's arbitration provision. The trial court, however, denied Uber's motion to compel arbitration. Uber appealed.

The appeals court rejected the company's claim that the driver could not bring a PAGA claim in court unless or until an arbitrator first decided whether she had standing to bring a PAGA claim—that is, whether she was an employee who could seek penalties under PAGA on behalf of the state, or an independent contractor who could not.

The appeals court concluded that the threshold question whether the driver was an employee or independent contractor could not be delegated to the arbitrator and affirmed the trial court's decision refusing to order arbitration.

Brought on Behalf of the State

The appeals court first noted that before PAGA was enacted, only the state could sue employers for civil penalties under the California Labor Code. Government enforcement proved problematic, for reasons including inadequate funding and staffing constraints.

So the legislature enacted PAGA to facilitate broader enforcement. The act authorizes aggrieved employees to pursue civil penalties on the state's behalf. Seventy-five percent of the civil penalties recovered go to the Labor and Workforce Development Agency, and the remaining 25 percent go to the aggrieved employees.

A PAGA claim is legally and conceptually different from an employee's own suit for damages and statutory penalties, the court noted. An employee suing under PAGA does so as the agent of the state's labor law enforcement agencies. Every PAGA claim is a dispute between an employer and the state. In addition, the civil penalties a PAGA plaintiff may recover on the state's behalf are distinct from the statutory damages or penalties that may be available to employees suing for individual violations. Relief under PAGA is designed primarily to benefit the general public, not the party bringing the action.

The court rejected Uber's claim that even if the driver's PAGA claim itself was not subject to arbitration, the initial issue of whether the driver was an employee or an independent contractor was arbitrable. Uber claimed that this issue did not arise under PAGA, but instead was a private dispute between the plaintiff and defendant regarding the nature of their business relationship.

In prior PAGA cases involving an arbitration agreement, courts have declined to rule that an arbitrator must first decide the threshold issue whether the plaintiff is an independent contractor or an employee. The employers in those cases argued that until the issue of whether the plaintiff was an "aggrieved employee" was resolved in arbitration, the plaintiff had no standing to pursue a representative PAGA action.

The courts in those previous cases held that threshold issues involving whether a plaintiff is an "aggrieved employee" for purposes of a representative PAGA-only action cannot be compelled to arbitration.

A court in a prior case concluded, "If an arbitrator rules that petitioners are not 'aggrieved employees,' there will be no remaining PAGA claim anywhere. By virtue of an arbitration to which it did not consent, the state will have lost one of its weapons in the enforcement of California's labor laws."

The court in this case declined to depart from the reasoning of those previous cases. The court noted that the California Supreme Court in Iskanian v. CLS Transportation Los Angeles LLC (2014) (59 Cal.4th 348) held that an arbitration agreement may not require an employee to give up the right to bring a representative PAGA action in court. A PAGA claim, the court noted, is not a dispute between an employer and an employee arising out of their contractual relationship, but rather is a dispute between an employer and the state.

A pre-dispute agreement between an employee and an employer cannot be the basis for compelling arbitration of a representative PAGA claim, the court said, because the state is the owner of the claim and the real party in interest, and the state was not a party to the arbitration agreement.

Rosales v. Uber Technologies inc., Calif. Ct. App., No. B305546 (April 30, 2021).

Professional Pointer: A company's attempt to compel arbitration of PAGA claims will likely be unsuccessful even if the worker has signed a contract agreeing to arbitrate employment-related disputes. However, claims for damages for wage and hour violations, as opposed to claims for civil penalties available under PAGA, still may be subject to mandatory arbitration.  

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