California Supreme Court rejects SCOTUS decision, keeps state labor law alive [Full text]

Workers in California can use a unique state law to join together and seek penalties against their employer for violating labor laws, the state Supreme Court ruled unanimously Monday, rejecting a U.S. Supreme Court decision that would have effectively nullified the California law.

The Private Attorneys General Act of 2004, or PAGA, lets employees sue their employers, individually or collectively, in the name of the state for violating laws such as those regulating minimum wages, overtime, sick pay and meal and rest breaks. If the suits succeed, the employees collect 25% of the penalties provided by labor law, and the state collects 75%.

Last June, the nation’s high court ruled 8-1 that PAGA violates the rights of businesses whose contracts require workers to take disputes to individual arbitration rather than going to court, a common practice for large companies. Arbitrators’ decisions are virtually unappealable, and studies have found that they usually favor employers, their frequent customers.

But as Justice Goodwin Liu observed in Monday’s 7-0 ruling — quoting another U.S. Supreme Court decision — “the highest court of each State… remains the final arbiter of what is state law.” And under the California court’s interpretation of PAGA, Liu said, employees may have to arbitrate their own claims but can still join co-workers to sue their employer on behalf of the state.

The rationale for the 2004 law, Liu wrote, is that an employer’s violations of one employee’s rights under labor laws “are often only a fraction of the violations committed by an employer that is engaged in unlawful workplace practices.” Interpreting the law to prohibit one employee from seeking penalties against a company for violating co-workers’ rights “would undermine PAGA’s purpose of augmenting enforcement of the Labor Code,” Liu said.

State Attorney General Rob Bonta told the court that allowing workers to rely on PAGA to sue employers was crucial to enforcing labor protections — with more than 1.6 million employers in California subject to state regulation, he said, state inspectors were able to conduct only 1,734 inspections in a recent year.

The ruling does not eliminate the last threat to PAGA, however. Business groups, which have argued that the law harms the economy and serves mainly to enrich lawyers, have qualified an initiative for the November 2024 ballot that would repeal the 2004 law and instead allow individual employees to sue their employers for labor law violations and collect 100% of the penalties, but no attorneys’ fees.

Michael Rubin, a lawyer for the worker in Monday’s case, praised the ruling and said he was optimistic that the state law would endure.

“The more the California populace learns about what a difference PAGA has made in the lives of workers throughout the state and how much PAGA has strengthened the state labor agencies to enable them to enforce workplace law on behalf of low-wage workers, the more confident I am that PAGA will survive the most recent initiative challenge,” Rubin said.

Although last year’s U.S. Supreme Court ruling put PAGA cases on hold, Rubin said, most courts in California resumed hearing those cases after a few months when state appellate courts began issuing rulings that rejected the Supreme Court’s reading of the law. Liu’s opinion Monday noted five appeals court decisions that had reached the same conclusion.

Theane Evangelis, attorney for Uber Eats, the food-delivery company in Monday’s case, said the ruling contradicted both the U.S. Supreme Court decision and federal arbitration law, and also “undermines the legislature’s intent in enacting PAGA. …We are considering our appellate options.”

The ruling was also criticized by attorney Adam Karr, who filed arguments for the Employers Group and the California Employment Law Council, among the business organizations that sought to curtail PAGA lawsuits.

“It will almost certainly lead to further abuse of PAGA by some plaintiffs and their attorneys,” Karr said. Unless state lawmakers act to limit the scope of PAGA, he said, “the benefits for both employers and plaintiffs of arbitration as a means of effectively, quickly, and fairly resolving disputes will be eroded.”

The ruling also illustrated differences between the highest courts of the nation and its largest state. While the U.S. Supreme Court has been fractured across ideological lines, with a 6-3 conservative majority prevailing in recent cases on abortion, affirmative action, student loans and gay rights, more than 80% of the California Supreme Court’s rulings in recent years have been unanimous.

Rubin’s client, Erik Adolph, went to work as a driver for Uber Eats in Orange County in 2019, and sued the company under PAGA later that year for refusing to reimburse drivers for expenses such as fuel costs, benefits that are provided to employees but not to independent contractors.

While his contract requires Adolph to arbitrate his individual claim against the company, Monday’s ruling allows him to sue Uber Eats on behalf of co-workers and the state. It does not resolve the equally contentious issue of whether the drivers are employees or contractors.

Under an earlier state Supreme Court ruling and followup legislation, AB5, that set standards for employment relationships, most or all of the drivers for Uber, Lyft and other app-based companies were classified as employees. But those companies sponsored a November 2020 ballot measure, Proposition 22, that carved them out of the law and reclassified their drivers as contractors. It was approved by 59% of the voters after a $200 million campaign by the companies.

A state appeals court upheld the key provisions of Prop. 22 this March, but the state Supreme Court set that ruling aside last month and agreed to hear the case and decide the issue.

Monday’s case is Adolph v. Uber Technologies, No. S274671.