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CA Supreme Court: Settling Plaintiffs May Continue as PAGA Representative

by D. Gregory Valenza | |

PAGA, or the Private Attorneys General Act of 2004, is that law that allows employees to collect penalties for wage and hour violations, which  only the Labor Commissioner used to be able to seek.  The plaintiff-employee “stands in the shoes” of the state.  As a reward, the plaintiff gets to keep 25% of any penalties recovered, and turns over the other  75% to the state.

The plaintiff-employee can collect penalties for any Labor Code violations s/he can find, for which the Labor Commissioner would have been able to seek penalties. S/he is not limited to penalties related to violations that pertain to that particular individual’s own employment. As a result, these Private Attorneys General or PAGA claims potentially are very dangerous and expensive.

Sometimes, a plaintiff will bring a claim in court for his or her own Labor Code claims, let’s say “unpaid overtime,” “meal period violations,” “unpaid vacation pay,” etc.  And then that same plaintiff will assert claims for PAGA penalties on behalf of the state. The named plaintiff could try to collect penalties associated with unpaid overtime for her own claim, sure. But what if the company failed to pay overtime to others?  There might be penalties there, too.  And how about penalties for bad wage statements, or a bad sick leave plan, a non-compliant payroll practice, an unlawful pay deduction, etc., even if those claims do not appear in the named plaintiff’s lawsuit.

Now let’s say that the Company settles with the individual plaintiff for all the unpaid overtime, the meal period claims, the unpaid vacation, etc.  In other words, the company calculates what wages the employer might owe the employee if she prevailed on every claim, and comes to an agreement on the value of the individual claims.  Perhaps throw in some extra money for attorney’s fees, some interest.  Easy breezy.

But wait. There is the PAGA claim to deal with.  Assume the settlement does not apply to the PAGA claims.  Can this plaintiff continue to sue even though she settled out her own individual claims?  And why does anyone care? 

Well, that’s what the Supreme Court decided in Kim v. Reins Intl.   In a  7-0 opinion (here), the Court decided that a plaintiff (Kim) can continue to pursue the PAGA claim even after settling the claims for individual relief with the employer (Reins). 

Justin Kim was a manager who claimed he was mis-classified as exempt. He brought a class action for mis-classification, that included a variety of Labor Code claims (overtime, wage statements, waiting time penalties, and more). Kim also asserted PAGA claims to recover penalties associated with Labor Code violations.  

Kim had signed an arbitration agreement with Reins. And that lil ol’ arbitration agreement disposed of his class action claims (because of a class action waiver). <—- !!   You can bet that lowered the settlement value of the case just a mite. The arbitration agreement also required Kim’s individual claim for misclassification and other Labor Code claims to be sent to arbitration.  

But the PAGA claim could not be arbitrated (because it was actually a dispute between Reins and the Labor Commissioner, rather than Kim as an individual).  Reins settled its claims with Kim for $20,000.00.  

That left Kim with his PAGA suit, in which he sought penalties on behalf of the State on behalf of himself and other “aggrieved employees.”  Reins sought to dismiss the PAGA suit, claiming Kim lost “standing” because he had settled his individual claims. Both lower courts agreed that Kim no longer was “aggrieved” because he had settled, and therefore lost standing to pursue a PAGA claim.  

The California Supreme Court, however, disagreed:

Kim became an aggrieved employee, and had PAGA standing, when one or more Labor Code violations were committed against him. (See § 2699(c).) 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.  

* * * * 

Employees who were subjected to at least one unlawful practice have standing to serve as PAGA representatives even if they did not personally experience each and every alleged violation. (§ 2699(c).) This expansive approach to standing serves the state’s interest in vigorous enforcement. (See Arias, supra, 46 Cal.4th at pp. 980- 981.)

Thus, the settlement of an individual claim is irrelevant to whether a plaintiff can continue with a PAGA lawsuit, as long as the PAGA claim is based on an alleged violation that the settling plaintiff suffered.  And the plaintiff only has to suffer one of the types of violations claimed in the PAGA lawsuit. That’s one of the key things about PAGA that makes those claims so difficult to handle. 

It bears noting that in this matter, Reins carved out Kim’s PAGA claims from the settlement. In fact, the Court seemed annoyed that Reins settled out the individual claims and expressly carved out the PAGA claims, only to argue the PAGA claims had to be dismissed. Had the PAGA claims been included in the settlement, the case obviously would have come out a different way.  

What does this mean?  Well, for starters, one who intends to resolve PAGA claims before litigation must include them in a release. That can be tricky, as can pre-litigation settlement of any wage claim.  Get help. 

Settling a live PAGA claim may require court approval, allocation of part of the settlement to PAGA, and payment of part of the settlement to the state.  That can get dicey with the court, the plaintiff’s counsel, etc.


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