California Supreme Court Holds Employees Who Settle & Dismiss Their Individual Claims Do Not Lose Standing to Pursue Claims Under PAGA
Los Angeles, Calif. (March 26, 2020) - In Kim v. Reins International California, Inc. the California Supreme Court held employees do not lose standing to pursue a claim under the Labor Code Private Attorneys General Act of 2004 (PAGA) if they settle and dismiss their individual claims for Labor Code violations.
The plaintiff in Kim sued his former employer in a putative class action claiming he and other training managers had been misclassified. The operative complaint alleged various Labor Code violations, including failure to pay wages and overtime, failure to provide meal and rest breaks, failure to provide accurate wage statements, and waiting time penalties.
The defendant successfully moved to compel arbitration of the plaintiff’s individual claims. While arbitration was pending, the plaintiff accepted the defendant’s §998 statutory offer to compromise, dismissing his individual claims and leaving only his PAGA cause of action. The defendant then moved for summary adjudication to have the PAGA cause of action dismissed on the ground that the plaintiff lacked standing and was no longer an “aggrieved employee” under PAGA. The trial court granted summary adjudication in favor of the defendant, agreeing that the plaintiff was no longer an “aggrieved employee” with standing to pursue the PAGA claims. The appellate court affirmed the decision of the lower court and the California Supreme Court granted review.
The California Supreme Court’s Decision
The California Supreme Court reversed the decision of the appellate court and held the plain language of section 2699(c) makes clear there are only two requirements for a current or former employee to have standing to bring a representative action: (1) the plaintiff must be aggrieved, meaning someone “who was employed by the alleged violator;” and (2) one or more of the alleged Labor Code violations were committed against the plaintiff. The court took an expansive approach to ensure employees can vigorously enforce the Labor Code as the state’s representative in pursing PAGA claims.
Relying upon the language of the statute, the statutory purpose supporting PAGA claims, and the overall statutory scheme, the Court reasoned that standing under PAGA relies on an employee suffering a violation, not an injury. Thus, the remedy for a Labor Code violation through settlement is different than the violation itself. The Court also noted that civil penalties available under PAGA have a different purpose from damages. Damages are intended to be compensatory and to make one whole, while civil penalties are intended to punish the wrongdoer and deter future conduct.
The Court further reasoned that a PAGA claim, although representative in nature, is different from a class action. The plaintiffs act only as the state’s representative or proxy; there is no individual component to a PAGA claim. In the Court’s view, the employer’s standing interpretation would allow employers “to avoid paying any penalties to the state simply by settling with individual employees,” who would then be precluded from receiving a share of penalties.
Impact on Employers
The Court’s decision will have a major impact on how employers elect to settle claims with employees. Now, an employer’s individual settlement with an employee may not bring finality to the claim, as the same employee may either continue to pursue or thereafter bring a PAGA representative action against the employer.
In the wage and hour sector, this means employees may now argue that even if an employer pays premiums for failure to provide meal or rest periods, an employee may still pursue PAGA penalties for the underlying failure to provide meal or rest periods. Employers will need to develop litigation and settlement strategies that take into consideration the effects of this decision, and continue to take proactive measures to ensure compliant employment policies and practices.
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Ashley N. Batiste, Associate
Ashleigh Reif Kasper, Partner