Over the past several years, the Private Attorneys General Act (PAGA) has become a proverbial thorn in the side of employers involved in wage and hour litigation. A “PAGA action” (discussed in more detail below) is often the weapon of choice for plaintiff attorneys looking to gain additional leverage in a case. It seemed that there was no way for an employer to get out of a PAGA battle unscathed. However, a recent decision by the 2nd District Court of Appeal has set forth one avenue for an employer to knock out PAGA claims based on a lack of standing.
For those fortunate enough to have avoided a run-in with PAGA, it is a California statute that authorizes an aggrieved employee to file a lawsuit against his/her employer to recover civil penalties on behalf of themselves, other employees, and the State of California, for violations of the California Labor Code. There are nearly 150 different Labor Code violations for which a PAGA action can be brought, including meal and rest break premiums (Labor Code §226.7), wage statement violations (Labor Code §226), and waiting time penalties (Labor Code §203).
Before being able to proceed with a PAGA action, an aggrieved employee must first be “deputized” to act on behalf of the California Labor Commissioner/State of California. This requires the individual to file a notice with the Labor and Workforce Development Agency (LWDA), identifying therein the specific provisions of the Labor Code that have allegedly been violated by the employer, as well as paying a $75.00 filing fee. Thereafter, the LWDA has 60 days to review the notice and determine whether the agency will investigate the alleged violations themselves. If the LWDA chooses to decline commencing with an investigation, the individual is automatically authorized to now act on behalf of the State and file a PAGA action. This means that the aggrieved employee may now file a civil suit for his/her own individual claims, in addition to a PAGA claim that seeks penalties for violations that may have occurred against other employees of the employer. The catch is, 75% of any civil penalties recovered under a PAGA claim are to be given to the State, while the remaining 25% is to be distributed to the aggrieved employees.
In December 2017, the 2nd District Court of Appeal provided clarification on who is, and who is not, an aggrieved employee for purposes of PAGA. As noted before, being an “aggrieved employee” is a prerequisite to being deputized by the State to proceed with a PAGA action. Indeed, PAGA defines an “aggrieved employee” as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” (Lab. Code, §2699, subd. (c).)
In Kim v. Reins International California, Inc., a restaurant manager alleged that he, along with other restaurant managers, were misclassified as exempt during their 90-day training period. As such, after going through the PAGA notice procedure, the plaintiff filed suit against his employer alleging individual and class claims for wage and hour violations, as well as seeking civil penalties on behalf of the State of California and other aggrieved employees under PAGA. During the litigation, the plaintiff accepted an offer to settle his individual claims and to dismiss those claims with prejudice. In light of this fact, the defendant moved for summary adjudication of the PAGA claims under the theory that by entering into a settlement and agreeing to dismiss his individual claims, plaintiff was no longer an “aggrieved employee” for purposes of PAGA. Accordingly, the argument by defendant was that the plaintiff had no standing to continue to litigate any PAGA claims. The lower court agreed with defendant and granted summary adjudication. After appealing, in a unanimous opinion, the 2nd District Court of Appeal affirmed that if a plaintiff settles and dismisses his/her individual claims, he/she does not have standing to continue with a PAGA action. In essence, the authority to act on behalf of the State is not without limitation and ceases when the employee can no longer be considered “aggrieved.”
The holding in Kim v. Reins International California, Inc. (B278642, Cal. Ct. App., December 29, 2017) is one of the rare circumstances where a limitation on PAGA has been enumerated by the court. However, the victory is a double-edged sword. If an employer chooses to settle an individual’s claims to nullify that persons standing to bring a PAGA claim, the employer will likely be left litigating another PAGA claim against the next employee who files a notice with the LWDA, thereby restarting the entire process over again. Alternatively, an employer can seek to settle with each and every potentially aggrieved employee until there is no one left to bring a PAGA claim, but this is oftentimes a cost-prohibitive proposition. Nonetheless, with victories for employers involved in PAGA actions being few and far between, Kim is a case worth celebrating, at least for the time being.