This morning the California Supreme Court issued its opinion in Kim v. Reins Int’l. California Inc., holding that employees do not lose standing to pursue Private Attorneys General Act (PAGA) claims even if they previously settled and dismissed their individual claims for Labor Code violations. PAGA authorizes employees to bring claims on behalf of the State of California against employers accused of violating provisions of California’s Labor Code. Fundamentally, a PAGA plaintiff must have standing as an “aggrieved employee,” meaning the plaintiff must (1) have been employed by the alleged violator of the Labor Code; and (2) have personally have suffered at least one Labor Code violation upon which the PAGA claim is based. In Kim, the plaintiff sued his employer claiming that he and others were misclassified as exempt employees. The employer successfully moved to compel arbitration of the plaintiff’s individual claims, and the trial court stayed the PAGA claim pending arbitration. Several months later, the plaintiff settled his individual claims. Once the trial court lifted the stay, the employer successfully moved for summary adjudication of the PAGA claim, arguing that the plaintiff lacked standing for the PAGA claim after settling the individual claims. Essentially, the employer argued that the plaintiff was no longer an “aggrieved employee” because he had settled his individual claims and received consideration in exchange for a release.
The California Supreme Court reversed, finding that the plaintiff retained standing to pursue PAGA penalties. The Court ruled that there is no link between the maintenance of individual claims and PAGA standing, an expansive approach the Court stated best serves the state’s interest in vigorous enforcement of the Labor Code. Additionally, the Court provided that civil penalties recovered through PAGA claims are intended to remediate present violations and to prevent future violations, instead of providing compensation for an employee’s injuries. The Court also distinguished PAGA claims from class actions, noting that class action plaintiffs who settle no longer have an interest in the case and may lose their ability to represent the class. However, because a plaintiff bringing a PAGA claim acts on behalf of the state, any individual settlement does not eliminate the state’s interest in the case. Ultimately, employees may resolve their individual claims against an employer, but continue with their PAGA claim as a proxy of the government. From a strategic perspective, this means employers cannot prevent civil penalties in a PAGA action simply by settling individual employees’ individual claims.
The Court’s slip opinion may be found here.
– Keesal, Young & Logan Employment Group
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