[Correction: An earlier version of this post stated that oral argument is scheduled for August 7. That is the date by which the Supreme Court should issue its decision in the case]

Oral argument in Adolph v. Uber Technologies is scheduled for May 9, 2023. On that date, the California Supreme Court will hear arguments to determine if someone with an individual PAGA claim in arbitration can still serve as a representative on behalf of others for the broader PAGA claim. This will define the scope of PAGA waivers in arbitration agreements, which has been a constant and costly headache for employers due to the expensive penalties for wage-and-hour violations. The Adolph decision will significantly impact potential PAGA liability, but few expect the State Supreme Court to grant the relief California employers are hoping for.  The California Supreme Court has 90 days after oral argument to issue its decision. 

In a case of statutory interpretation, the California Court of Appeal recently ruled that litigation to enforce the state’s paid sick leave law (PSL) may be prosecuted under the state’s Private Attorney General Act (PAGA).ⁱ

The Healthy Workplaces, Healthy Families Act of 2014 (HWHFA)ⁱⁱ generally requires employers to provide eligible employees with at least three paid sick days per year. The Labor Commissioner and the Attorney General are charged with enforcing this law.ⁱⁱⁱ

Finding that enforcement statutes under the HWHFA do not preclude an “aggrieved”^iv employee from bringing a PAGA action for violations of the Act, the Court’s ruling opens the door to additional employer related PAGA risks. A few key points on complying with HWHFA are outlined below.

The HWHFA provides three separate methods for providing paid sick leave benefits: 1) Accrual; 2) Lump sums via front-loading; and 3) Pre-existing sick policy that meets HWHFA requirements.

Accrual Method:

Accrual rates are a minimum rate of one hour for each 30 hours worked starting on the first day of employment, or that provides at least 24 hours by the 120th day of each year of employment, calendar year, or other 12-month period. Employers may also provide new hires at least 24 hours or 3 days of sick time available for use after 120 days of employment. Nonexempt employee overtime hours are counted toward accrual rates. 

Unused accrued hours must be allowed to carry over from year to year. Total accrual hours may be capped. In the absence of express guidance from California’s Department of Labor Standards Enforcement, a conservative approach to capping accrued hours would be to cap total accrual rates at 48 hours or six days; whichever provides the greater benefit to the employee. Employers should again be aware that local paid sick leave provision may require greater total accrual caps. 

Front-Loading Method:

Front-loading allows an employer to provide a lump sum amount of paid sick leave time at the start of each year of employment, calendar year or any 12-month period. Minimum sums are based on the following: 

• 24 hours for part-time employees (less than 8 hours per day). 
• 24 hours or three days for employees who regularly work an eight-hour day. 

Three times the regular number of daily work hours (or three days) for employees who regularly work more than an eight-hour day (for example, employees working ten-hour shifts must receive a lump sum of at least 30 hours). 

Employers should be aware that local laws allowing front-loading may require greater amounts of leave time. No carryover is required when employers opt to front-load paid sick leave benefits. However, employers should check applicable local leave laws to determine if carryover provisions apply to front-loading. 

Both methods have positive and negative aspects, but overall, a front-loading method—with no carryover or accrual calculations—is far easier from an administrative perspective. 

NOTE: Modifying pre-existing Paid Time Off (“PTO”) policies will cause employers to lose their existing PTO policy “grandfathered” status and will require them to comply with all statutory requirements. 

Paid sick time may be used for bereavement, illness, injury or preventive care for themselves, a designated person, or a family member as outlined in the statute. Sick time can also be used for certain purposes by an employee who is a victim of crime or abuse. The employee must provide reasonable advance notice if the need to use paid sick leave is foreseeable. If not foreseeable, the employee must provide notice as soon as practicable. 

Although employers are not required to pay accrued PSL to an employee at the time of termination, those that choose to combine sick leave and vacation into a PTO plan will be required to pay out the accrued time. 

[i]  Wood v. Kaiser Foundation Hospitals (Feb. 2023) No. D079528.

[ii]  Labor Code § 245 et seq.

[iii] Labor Code § 248.5

[iv] PAGA defines an “aggrieved employee” as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” (Lab. Code, §2699, subd. (c).)

The U.S. Supreme Court’s decision last June in Viking River Cruises v. Moriana was viewed by many as a victory for employers. The Court allowed individual Labor Code Private Attorneys General Act of 2004 (PAGA) claims to be compelled to arbitration and required the dismissal of non-individual PAGA claims brought on behalf of others.  The case has resulted in a wave of motions in state and federal courts to compel arbitration of individual PAGA claims and to dismiss or stay non-individual PAGA claims.  

While most courts have granted motions to compel arbitration of individual PAGA claims, the aspect of the Viking River decision that requires non-individual PAGA claims to be dismissed if there is no PAGA plaintiff to pursue them has varied in outcomes. Federal courts have generally followed the guidance from Viking River and dismissed non-individual PAGA claims after compelling individual PAGA claims to arbitration.  State courts, on the other hand, are staying non-individual PAGA claims rather than dismissing them, preferring to wait for the California Supreme Court to clarify California’s law on PAGA standing when it decides the issue in Adolph v. Uber Technologies, Inc. 

For courts that stay non-individual PAGA claims pending arbitration of individual PAGA claims, the arbitrator must determine if the plaintiff is an “aggrieved employee,” defined by PAGA as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” If the plaintiff is not an “aggrieved employee,” they would lack standing to pursue the non-individual PAGA claims.  

Western Growers will be eagerly anticipating and monitoring the California Supreme Court’s decision in Adoph which will shed further light on this evolving area of the law.  However, most practitioners do not anticipate the state high court to agree with the U.S. Supreme Court’s interpretation of California PAGA standing law, leaving California employers vulnerable to shakedown lawsuits. The best hope for PAGA reform remains the California Fair Pay and Employer Accountability Act, which Western Growers helped qualify for the 2024 ballot. 

The California Court of Appeal for the Second Appellate District recently issued a decision that disagreed with the Supreme Court’s interpretation of the Private Attorneys General Act of 2004 (“PAGA”) in Viking River Cruises, Inc. v. Moriana. PAGA allows employees to sue their employers for Labor Code violations on behalf of themselves and other current or former employees. Viking River held that while California could prohibit pre-dispute arbitration agreements that waived the right to assert “representative” claims under PAGA, the Federal Arbitration Act preempts any rule against requiring employees to arbitrate their “individual” PAGA claims.

Uber asked the Court of Appeal to compel arbitration of the plaintiff’s individual PAGA claims under the agreement and dismiss the non-individual PAGA claims the plaintiff sought to bring on behalf of other drivers. The court agreed that the plaintiff had signed an arbitration agreement requiring him to arbitrate his individual PAGA claims but concluded that PAGA’s standing requirements presented a question of state law as to which Viking River was not binding. The court held that the plaintiff maintained standing to pursue non-individual PAGA claims in court notwithstanding his agreement to arbitrate his individual PAGA claims. The court concluded that the arbitration agreement merely required him to “litigate” the non-individual “portion” of his PAGA claim in an “alternative forum.”

This decision, Gregg v. Uber Technologies, Inc. and a previous decision, Galarsa v. Dolgen California, LLC, have disagreed with Viking River’s interpretation of PAGA’s standing requirements. Both decisions are binding on California trial courts. When a PAGA plaintiff has an arbitration agreement that requires arbitration of their individual PAGA claim, California trial courts will likely not dismiss any representative PAGA claims that are also alleged, as Viking River interpreted California law to require. Instead, trial courts will most likely stay the representative claims pending the individual arbitration.

However, the California Supreme Court has granted review in Adolph v. Uber Technologies to answer the question of whether an employee who has been compelled to arbitrate their individual claims under PAGA maintains statutory standing to pursue representative PAGA claims based on alleged Labor Code violations against other employees. Employers should be careful to craft arbitration agreements that comply with the latest decisions on the interplay between PAGA and the Federal Arbitration Act and regularly review their arbitration agreements with legal counsel.