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Arbitrator Cannot Decide Whether Plaintiff Is An Employee Or Independent Contractor Under PAGA
Damaria Rosales (Rosales) was an Uber driver under a written agreement with Uber Technologies (Uber) stating she was an independent contractor. The agreement compelled all disputes to be resolved by arbitration under the Federal Arbitration Act (FAA) and delegated to the arbitrator decisions on the enforceability or validity of the arbitration provision. The arbitration agreement was part of Uber’s then-standard technology services agreement, which Rosales executed online when she became a driver for Uber in March 2016.
In April 2018, Rosales filed suit against Uber for unpaid wages under the Private Attorneys General Act (PAGA). PAGA allows aggrieved employees to sue their employer for Labor Code violations and pursue civil penalties on the state’s behalf. Thus, every PAGA claim is a dispute between an employer and the state. Relief under PAGA is designed primarily to benefit the general public, not the party bringing the action. In January 2020, Uber sought an order compelling Rosales to arbitrate the issue of her independent contractor status under the arbitration agreement. Uber argued that Rosales could not bring a PAGA claim unless or until an arbitrator first decided whether she was an employee who could seek penalties under PAGA on behalf of the state. The trial court denied Uber’s motion holding that the parties’ arbitration agreement does not bind the State of California, on whose behalf Rosales brought the PAGA claim. Uber appealed the trial court’s ruling.
On appeal, Uber argued that the FAA governs the arbitration provision, and under the FAA, the parties’ agreement to delegate the issue of arbitrability to the arbitrator is enforceable. The Court of Appeal disagreed and relied on prior California Supreme Court decisions explicitly holding that the FAA does not govern PAGA claims. Uber also relied on federal district court cases that concluded, in other contexts, that an arbitrator must determine the threshold worker classification issue where the arbitration agreement allows. However, the appellate court found that those cases were inapplicable because none involved a PAGA claim. Finally, Uber argued that the threshold classification issue is subject to the FAA because “it is not a PAGA claim at all” but rather a “private dispute.” The Court of Appeal rejected Uber’s argument ultimately holding that, although Rosales and Uber had a binding arbitration agreement, an arbitrator could not decide whether Rosales was an employee or an independent contract because the arbitration agreement does not bind the State of California, on whose behalf Rosales brought the PAGA claim.
Rosales v. Uber Technologies, Inc. (2021) 63 Cal.App.5th 937, review filed (June 8, 2021).
In light of this decision, private K-12 schools, colleges, and universities should be aware that workers classified as independent contractors who are parties to arbitration agreements may nevertheless be able to bring a PAGA claim against their employer for Labor Code violations.