Faced with dueling directives from the US and California supreme courts, a federal appellate panel on Wednesday will be tasked with deciding whether a former
PAGA, as the statute is commonly known, permits individuals to step into the state’s shoes to enforce labor law violations. Former Lowe’s worker Maria Johnson says that a California Supreme Court decision issued less than three months ago boosts her arguments for a new shot at keeping her claims in court, as representative of a class of similarly wronged coworkers.
But the July ruling from California’s top court actually “runs headlong” into the recent US Supreme Court precedent it was interpreting, the home improvement chain told the US Court of Appeals for the Ninth Circuit. Lowe’s urged the appellate court to let stand the decision below, which sent the worker’s individual PAGA claim to arbitration and dismissed the non-individual ones.
Pushback was inevitable after the California Supreme Court’s ruling in Adolph v. Uber Technologies Inc., which dealt with the interplay between the Federal Arbitration Act and PAGA and whether claims made under the state law lay outside the federal law. If the Ninth Circuit can’t resolve how the rulings interact, “potentially the US Supreme Court might get involved again,” said Nima Darouian, of counsel at Ballard Spahr LLP.
“I think the fact that it is raising the question of, ‘Is this issue a California issue or a federal arbitration issue?’ is very novel in that because that’s really what it boils down to,” said Darouian, who defends employers from such claims.
Employers also may get clarity next year if voters approve the California Fair Pay and Employer Accountability Act of 2024. The business-backed initiative on the November 2024 ballot would “eliminate shakedown lawsuits,” the Californians for Fair Pay and Employer Accountability says, by shifting to the Labor Commissioner the power to enforce penalties by repealing PAGA. It also would double penalties and require all funds be awarded to the worker.
Plaintiffs using PAGA have added $696.6 million to the state’s coffers between 2004 and March 2023, according to the California Department of Industrial Relations.
By November 2024, the three-judge Ninth Circuit panel hearing the closely watched case should have decided just how far precedent spreads in Johnson’s suit against Lowe’s.
PAGA Arbitration Changes
Johnson sued the Lowe’s Cos. subsidiary in state court in late 2020 for allegedly underpaying workers for sick leave. The home improvement company removed the case to federal court early the following year. As her suit moved through the court system, state and federal judges made major changes to the rules surrounding arbitration of PAGA claims.
The state law allows workers to recover penalties for violations of California employment laws on behalf of the state and their fellow employees.
Predispute PAGA litigation waivers have been barred in California since the 2014 California high court ruling in Iskanian v. CLS Transportation Los Angeles LLC. But the US Supreme Court’s Viking River Cruises Inc. v. Moriana decision, issued last year, partly invalidated Iskanian and held that the FAA allows companies to require workers to arbitrate their individual PAGA claims and suggested that non-individual PAGA claims should then be dismissed.
California’s high court agreed with its national counterpart that individual claims under PAGA can’t remain in court when the parties have an arbitration agreement. The state justices, however, said sending an individual’s claims to arbitration under state law “doesn’t strip the employee of standing to litigate the non-individual claims,” Darouian said.
Interpreting Adolph
Both Johnson and Lowe’s say that Viking River, when properly interpreted, supports their position, but they disagree on how the Ninth Circuit should interpret the precedent, which is barely more than a year old. After California’s high court handed down Adolph, the Ninth Circuit directed the parties to submit letter briefs outlining how that decision affected their dispute.
The California Supreme Court’s ruling in the misclassification and wage claims of Uber Eats driver Erik Adolph established that, at least as far as that court is concerned, there’s nothing wrong with workers pursuing their fellow employees’ PAGA claims in court even after their own are shunted to an alternative dispute resolution process.
The olive branch in Adolph is it gave the trial court permission to stay the representative action in court while the individual action is pursued in arbitration, Darouian said. Lowe’s is arguing “that there’s no reason to keep this issue pending in the court system” and “this threshold issue should be fully committed to arbitration,” the management-side lawyer added.
“I don’t think the Ninth Circuit in Lowe’s is at liberty to disagree with Adolph on an issue of purely California law,” said Ryan Wu, the Capstone Law APC partner who argued the worker’s position in Iskanian.
As Justice
‘Cannot be Waived’
The Ninth Circuit could find another rationale that extends beyond not just standing under state law but Article III standing under the US Constitution, which would permit the appeals court to depart from Adolph, Wu said. But,"I don’t think the Ninth Circuit would venture so far afield,” he added.
“The federal courts are done with this issue” after Viking River, which acknowledged standing is a state law issue, “and as such, the California Supreme Court’s decision is the final word on this state law issue,” said Kyle Nordrehaug, a partner with the plaintiffs’ side firm Blumenthal Nordrehaug Bhowmik De Blouw LLP.
“The important point is that the US Supreme Court in Viking River affirmed that PAGA cannot be waived.”
A Ninth Circuit ruling issued after Viking River but before Adolph suggests that the court thinks district judges have discretion to dismiss cases on arbitration grounds “only when the entire lawsuit is subject to arbitration,” Julie O’Dell and Drake A. Mirsch, a partner and associate at Armstrong Teasdale LLP, said in an email.
That just isn’t the case with PAGA suits after Viking River, O’Dell and Mirsch, who defend employers in those actions, said. “There is no conflict between the FAA and Adolph,” they added.
Diversity Law Group PC and Hollister, Calif.-based Bill Marder represent Johnson. Gibson, Dunn & Crutcher LLP represents Lowe’s.
The case is Johnson v. Lowe’s Home Ctrs. LLC, 9th Cir., No. 22-16486, oral arguments 10/4/23.
