By: Manuel Ignacio
The California Supreme Court has made it even easier for employees to file and maintain PAGA claims against their employers. The Court ruled this week that employees who settle and dismiss their individual claims for Labor Code violations can still bring claims as representatives of the state under the Private Attorneys General Act (“PAGA”). The case is Kim v. Reins International California, Inc. PAGA claims are representative employee actions, which are similar in size to class actions, and which provide for steep civil penalties, typically assessed on a per-employee, per-pay period basis.
The Court ruled that to have “standing,” (i.e., the right to file a claim) under the PAGA, an employee only needs to show that he was employed by the defendant employer and that an alleged violation was committed against him. Under this decision, an employee does not need to claim that he suffered any actual injury from the violation in order to bring a PAGA claim. Unfortunately, this will make it more difficult for employers to get PAGA claims dismissed even when the employees who file them agree to individual settlements.
The plaintiff, Justin Kim, filed a class action lawsuit against Reins International California, Inc. (Reins), claiming that he and other Training Managers were misclassified as exempt from overtime laws. The lawsuit included statutory wage, meal and rest break, and itemized wage statement claims, plus civil penalties under the PAGA. Kim had signed an employment arbitration agreement with Reins. Reins used the arbitration agreement to force Kim to arbitration on his individual claims and to have the class action claims dismissed. However, under current California law, PAGA claims cannot be waived or included in employment arbitration agreements. As a result, Kim’s PAGA claims were put on hold while his individual claims were in arbitration. Kim then settled and dismissed his individual claims.
Reins then moved to have the PAGA claims dismissed and argued that Kim could no longer bring any PAGA claims because all of his alleged injuries were redressed in his settlement. However, the Court said that a PAGA claim is distinct from an employee’s individual claims. An employee sues under PAGA as an agent of the state, and the civil penalties that a PAGA plaintiff recovers are also distinct from the damages and penalties for individual claims.
Only an “aggrieved employee” has standing to bring a PAGA claim. However, the Court ruled that all an employee has to show in order to have standing is that he or she was “employed by the alleged violator” and “one or more of the alleged violations was committed” against him or her. The employee does not even need to claim that any economic injury resulted from the alleged violations. As a result, even if an employee’s class action claims fail due to a properly drafted arbitration agreement, and even if the employee settles all of his or her individual wage and hour claims, that employee can still maintain a PAGA claim.
COUNSEL TO MANAGEMENT:
This case is a timely reminder of the importance of having employees sign properly drafted arbitration agreements. While arbitration agreements cannot be used to prevent PAGA claims, they can be used to shift individual claims out of the courts and into arbitration, and as a defense to class action claims. For now, employers may continue to utilize employment arbitration agreements as the legal challenge to AB-51 continues. See our previous articles on that topic here. As always, the best defense to a PAGA claim is to ensure compliance with the state’s wage and hour laws. If you have any questions about your company’s wage and hour policies, or have any concerns about exposure to PAGA claims, contact the employment law experts at Dowling Aaron Incorporated, Saqui Law Group Division.
