Gig Companies Take Another Blow in the Courtroom
Earlier this year, gig economy companies operating in California lost another lawsuit seeking to allow them to determine questions of gig worker classification via private arbitration instead of using the courts. On April 22, the Second Appellate District of the Court of Appeals of the State of California invalidated an arbitration provision in Uber’s contracts that would have waived the right for workers to file a suit against the company under California’s Private Attorney General Act. Uber argued that this contractual provision meant that issues such as gig worker misclassification and labor law violations must first be decided in arbitration before the worker could sue under PAGA, but the courts once again declined to adopt this position. With this loss, Uber joins other gig companies like Zum Services and Skip Transport, both of which have previously failed to halt PAGA lawsuits on the basis of contractual arbitration waivers. With this series of courtroom setbacks, it appears that gig companies operating in California will be faced with the possibility of incurring significant liability if workers take them to court under PAGA.
What is The Private Attorney General Act?
Codified in 2004, California’s PAGA is an expansive law that allows “aggrieved employees” to file lawsuits on behalf of themselves, other employees, and the State itself for violations of California’s labor laws. Despite the fact that private individuals bring the claim themselves, California courts have routinely held that a PAGA lawsuit is not “an individual action at all, but instead is one that is indivisible and belongs solely to the state.” Indivisibility is key because gig companies have repeatedly argued that worker classification questions are “threshold issues” that must be settled first to determine whether the worker is indeed an aggrieved employee or simply an independent contractor. Further, gig companies argue that any such threshold issues should be decided in private arbitration according to contractual provisions because independent contractors have no standing to sue under PAGA in the first place. However, California courts have rejected this argument outright, finding that there are no divisible threshold issues in PAGA cases and that courts, not private arbitration, should determine whether the aggrieved employee was actually aggrieved and actually an employee. Likewise, courts have found that a worker’s right to file a PAGA lawsuit cannot be waived and that any arbitration provision that seeks to do so is unenforceable and invalid.
What Does it Mean for Companies?
Uber’s loss in the courtroom appears to be even more evidence that California courts will protect a worker’s right to sue under PAGA, regardless of any possible threshold issues. Gig companies operating in California should be aware of the increased risk and potential liabilities they face from PAGA lawsuits and that contractual waivers appear to be unenforceable in the state. However, it is unknown how Proposition 22, the voter-approved ballot initiative that exempts most gig workers from the state’s worker status laws, will affect existing and future PAGA lawsuits going forward.