California Worker's PAGA Claims Survive Settlement of Individual Wage Claims

An employee who settled his individual wage and hour claims against his former employer can still pursue a representative claim under the California Private Attorneys General Act (PAGA).

PAGA allows aggrieved employees to sue over alleged labor code violations on behalf of themselves and other employees by stepping into the shoes of state regulators to recover civil penalties. Seventy-five percent of the penalties that are recovered go to the state, and 25 percent go to employees.

In Kim v. Reins International California, Inc., the dispute centered on whether the plaintiff was still an "aggrieved employee" who could pursue his remaining PAGA claims after he settled his individual claims that were brought in the same lawsuit.

The appeals court found that the plaintiff was no longer an aggrieved employee with PAGA standing. But the California Supreme Court reversed the ruling, pointing to language in the act indicating that a plaintiff's standing to bring a PAGA claim is "not inextricably linked to the plaintiff's own injury."

Barbara Harris Chiang, an attorney with Kaufman Dolowich & Voluck in San Francisco, said the ruling is "unwelcomed by employers, but not necessarily unexpected."

Employers should not assume a pre-litigation settlement with an individual employee for alleged wage and hour violations will prevent that employee from bringing a PAGA action or from being an aggrieved party if another employee files such an action, she said. Employers should view every PAGA claim as a dispute with the state, not as a dispute with the employee bringing the claim.

'Aggrieved Employee'

In this case, the plaintiff brought individual and class claims against a restaurant chain for allegedly failing to pay wages and overtime, failing to allow meal and rest periods, and failing to provide proper wage statements. He also sought civil penalties under PAGA.

The employee had signed an arbitration agreement when he was hired, and the trial court said he had to arbitrate his individual claims. He ultimately accepted a settlement offer, and his individual and class claims were dismissed.

The employer argued that, because the worker's claims were dismissed, he was no longer an "aggrieved employee" under PAGA and therefore could not pursue the remaining claims. But the California Supreme Court disagreed.

"A PAGA claim is legally and conceptually different from an employee's own suit for damages and statutory penalties," the state high court explained. An employee who sues under PAGA is acting as an agent for California's labor law enforcement agencies.

"Since the law was first enacted in 2004, many California employers have been hit with PAGA actions, in which employees can seek substantial civil penalties previously only recoverable by the state of California," noted Kelly Gemelli and Jason Dawson, attorneys with Jackson Lewis in San Diego.

An initial PAGA violation carries a $100 penalty per employee per pay period. Every subsequent violation carries a $200 penalty. Plaintiffs can also recoup attorney fees.

"Relief under PAGA is designed primarily to benefit the general public, not the party bringing the action," wrote Justice Carol Corrigan for the California Supreme Court.

So who can represent the state in a PAGA claim? Not every private citizen can serve as the state's representative, Corrigan noted. Only an aggrieved employee has standing to bring a PAGA claim. An "aggrieved employee" is defined in PAGA as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed."

The state high court said, "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."

Employer Takeaway

"PAGA cases have become increasingly favored by plaintiffs' attorneys for several reasons, including the fact that PAGA claims cannot be compelled into arbitration," Gemelli and Dawson said.

Employers should note that even if an employee signed a valid agreement to individually arbitrate labor code claims, settlement of those claims in arbitration will not preclude the employee from pursuing a PAGA action in court on behalf of aggrieved employees, Chiang said. If a worker was employed by the business and alleges that he or she personally suffered at least one California Labor Code violation on which the PAGA claim is based, she noted, then the employee will satisfy the requirements for standing.