California Supreme Court Holds that Employees Maintain Standing to Pursue a PAGA Claim After Settling Their Individual Labor Code Claims

On March 12, 2020, in addressing an issue of first impression, the California Supreme Court in Kim v. Reins International California, Inc. (S246911), held that 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.

In Kim, Defendant employer operates restaurants in California and employed plaintiff as a “training manager,” a position it classified as exempt from overtime laws. Plaintiff sued his employer in a putative class action, claiming his employer had misclassified him and other training managers. Based on an employment agreement plaintiff signed when he was hired, the trial court granted the employer’s motion to compel arbitration of the “individuals claims” for plaintiff’s own damages, to dismiss the class claims and stay the PAGA claim until arbitration was complete. Several months later, plaintiff accepted the employer’s statutory offer to settle all of plaintiff’s “individual claims” in exchange for dismissing plaintiff’s individual claims and leaving only the PAGA claims for resolution. After the court lifted the stay, the employer moved for summary adjudication claiming plaintiff lacked standing. The trial court agreed, concluding plaintiff was no longer an aggrieved employee with PAGA standing. The Court of Appeal affirmed the judgment.

The Supreme Court reversed the judgment holding that plaintiff’s settlement of his individual Labor Code claims did not extinguish his PAGA standing. “When, as here, a cause of action is based on statute, standing rests on the provision’s language, it’s underlying purpose, and the legislative intent.” The statutory language, the statutory purpose supporting PAGA claims, and the overall statutory scheme demonstrate that an employee still has representative standing under PAGA despite settlement of his individual claims.

The plain language of Labor Code section 2699, subdivision (c), has only two requirements for PAGA standing. The plaintiff must be an aggrieved employee, which is defined as someone who was employed by the alleged violator and against whom one or more of the alleged violations was committed. The Legislature defined PAGA standing in terms of violations, not economic injury. “If the Legislature intended to limit PAGA standing to employees with unresolved compensatory claims when such claims have been alleged, it could have worded the statute differently.”

Moreover, this expansive approach to standing serves the state’s interest in vigorous enforcement. “Although representative in nature, a PAGA claim is not simply a collection of individual claims for relief, and so is different from a class action.” There is no individual component to a PAGA action because every PAGA action is a representative action on behalf of the state—plaintiffs bring a PAGA claim as the state’s designated proxy. Further, an employee may bring stand-alone PAGA claims. As such, requiring maintenance of individual claims for standing under PAGA cases would deprive many employees of the ability to prosecute PAGA claims, “contrary to the statute’s purpose to ensure effective code enforcement.”

Here, plaintiff was employed by the defendant employer and alleged that he personally suffered at least one Labor Code violation on which the PAGA claim is based. Settlement did not nullify these violations. The remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself. As such, plaintiff is considered an aggrieved employee with standing to pursue penalties on the state’s behalf.

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March 16, 2020