Labor & Employment Law Daily Settlement of individual claims doesn’t deprive California employee of PAGA standing
Tuesday, March 17, 2020

Settlement of individual claims doesn’t deprive California employee of PAGA standing

By Brandi O. Brown, J.D.

Employees who settle and dismiss their individual claims do not lose standing to pursue a claim under the Labor Code’s Private Attorneys General Act; they still have standing as the state’s authorized representative to pursue PAGA remedies.

On appeal of a decision dismissing an aggrieved employee’s PAGA claim after the parties had settled the employee’s individual claims, the California Supreme Court has clarified that settlement of those claims did not affect the employee’s PAGA standing. The employer’s argument that the employee no longer had representative standing because his injury had been redressed failed, the court held, because it was “at odds with the language of the statute, the statutory purpose supporting PAGA claims, and the overall statutory scheme.” Accordingly, the judgment of the appeals Court of Appeals was reversed and the case was remanded to the trial court (Kim v. Reins International California, Inc., March 12, 2020, Corrigan, C.).

The employee worked as a “training manager” at one of the employer’s restaurants, and his position was classified by the employer as exempt from the overtime laws. The employee subsequently sued the employer in a putative class action claiming that he, and others in his position, had been misclassified. He alleged several causes of action under the California Labor Code and also sought civil penalties under PAGA.

Arbitration, then PAGA claim dismissed. The employer moved to compel arbitration of the “individual claims” for damages by the employee and moved to stay the PAGA claim until arbitration was completed. The court granted the motion and the parties went into arbitration. Eventually the parties agreed to settle the employee’s individual claims, specifically excluding the PAGA claim, and the employee dismissed them, which left only the PAGA claim for resolution. The employer then moved for summary judgment on that claim, arguing that the employee lacked standing to pursue it. The trial court granted the employer’s motion for summary judgment, and that ruling was affirmed on appeal. The California Supreme Court granted review.

Broad construction, plain language. Noting the remedial nature of the legislation, i.e., that it is meant to protect employees, the court explained that it would construe the PAGA provisions broadly. The plain language of Labor Code section 2699(c), the court noted, sets out only two requirements for standing: the plaintiff must be an “aggrieved employee,” i.e., someone “who was employed by the alleged violator” and he must be someone “against whom one or more of the alleged violations was committed.” The employer conceded that while the employee had PAGA standing when he first filed suit, he lost it when he settled his individual claims.

Violation, not injury. The California high court rejected that argument, concluding that it “fails because it is at odds with the language of the statute, the statutory purpose supporting PAGA claims, and the overall statutory scheme.” In the Private Attorneys General Act, the legislature defined standing in terms of violation and not injury. When the employer committed Labor Code violations against the employee, he became an aggrieved employee, and settlement of his claims neither nullified nor excused the violation. The explicit definition of “aggrieved employee” is “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” No claim for economic injury is required by that definition, thus the employer’s “use of ‘aggrieved’ as synonymous with having an unredressed injury is at odds with the statutory definition.”

To hold otherwise, the state high court explained, would expand the definition in such a way as to provide that an employee who has settled an individual damages claim is “no longer aggrieved.” Courts must be careful not to add requirements that aren’t in the statute and to recognize that if the legislature intended to limit standing in this way, then it would have worded the statute to do that. The court noted two recent intermediate appellate decisions reaching a similar conclusion, Raines v. Coastal Pacific Food Distributors, Inc. and Lopez v. Friant & Associates, LLC.

Purpose. Additionally, the court explained that the employer’s injury-based view of standing would be contrary to the purpose of the statute to ensure effective code enforcement. PAGA claims are unique because they serve the purpose of augmenting the state agency’s enforcement capabilities; any civil penalties that are recovered are remedial and deterrent in nature and not intended to redress employee injuries. A PAGA claim is also unlike a class action because it is not a collection of individual claims for relief—there is no individual component to it because it is a representative action.

Statutory context. The broader statutory scheme also supports this conclusion, the court explained, because the employer’s interpretation of the “aggrieved employee” term “would seriously impair the state’s ability to collect and distribute civil penalties under these provisions.” It would also diminish the state’s recovery and allow employers to reduce liability for penalties, contrary to the statute’s goal of strengthening enforcement. More broadly, construing the language in the way the employer argues would also conflict with the ability of plaintiffs to bring stand-alone claims under PAGA and thus the statute’s instruction regarding non-limitation of other remedies available to employees. And more specifically, premising standing on the existence of an unredressed injury would be inconsistent with other Labor Code statutes that impose penalties without a private right of action. The employer’s argument is also unsupported by the history of the legislation.

Finally, the court rejected the employer’s argument that principles of claim preclusion would bar the employee from litigating the PAGA claim. Not only did the settlement specifically exclude the pending PAGA claim but also the employer was attempting to apply preclusion principles to claims within the same lawsuit, rather than to claims brought in a second suit.

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