In a decision issued Thursday, March 12, 2020, the California Supreme Court ruled that individual settlement of claims for violations of California’s Labor Code does not preclude an employee from subsequently pursuing remedies under California’s Private Attorney General Act (“PAGA”).
This decision, Kim v. Reins International California, Inc., is incredibly disappointing for California employers seeking to minimize their risk for seemingly minor violations of the California Labor Code.
PAGA allows individual employees to prosecute claims for penalties available under the Labor Code on the state’s behalf. In order to prosecute a PAGA claim, an individual must be an “aggrieved employee . . . against whom [an alleged Labor Code violation] was committed.” The precise meaning of that term was at issue in this case.
Reins International California, Inc. (“Reins”) was sued by former employee Justin Kim for seven claims – six alleging various violations of the Labor Code, and a seventh for penalties under PAGA. Pursuant to an arbitration agreement, the six Labor Code claims were compelled to arbitration and the PAGA claim was stayed pending the arbitration’s outcome. The parties settled Kim’s six Labor Code claims during the pendency of the arbitration, and those causes of action were dismissed.
Reins then successfully moved for summary judgment, arguing that Kim was no longer an “aggrieved employee” within the meaning of PAGA, because he had settled his individual wage claims and had, thereby, resolved any individual injury he may have suffered. The decision was affirmed on appeal and accepted by the California Supreme Court.
Supreme Court Reverses
The California Supreme Court reversed, concluding that the plain language of the statute, PAGA’s statutory purpose, and legislative history merely required that an employee suffer a violation of a PAGA-covered Labor Code provision by their employer, and did not require that the employee suffer individual injury.
First, the Court noted that the definition of “aggrieved employee” under PAGA did not refer to the employee suffering an individual injury, but to “violations” of law, a concept separate and distinct from individual injury. Moreover, implying an individual injury requirement would “add an expiration element” to PAGA that the Legislature did not intend.
Second, the Court noted that PAGA allows employees to seek penalties in the state’s stead, and consequently, there was no personal element to a PAGA claim at all. Additionally, the statute explicitly states that PAGA suits can be brought separately from individual claims, allowing the Court to conclude that a PAGA claim may be maintained without any underlying individual injury. Moreover, PAGA empowers employees to collect penalties for Labor Code provisions that do not include an individual right of action. If individual injury were required to pursue a PAGA action, the Court concluded, there would be no purpose to including Labor Code provisions without a private right of action within PAGA’s coverage.
Third, the Court observed that requiring individual injury to pursue a PAGA claim would allow employers to reduce or avoid state-imposed penalties that would otherwise be distributed to aggrieved employees – even where such penalties could not be waived by the employee – in contravention of PAGA’s purpose to increase enforcement of the Labor Code. Further, it would allow employers to reduce the state’s interest in the amounts collected, or avoid the state’s collection of any penalties whatsoever, in contravention of PAGA’s purpose.
Finally, the Court concluded that neither the legislative history of PAGA nor equitable principles demanded that an individual injury requirement be read into PAGA. Because summary judgment was not proper, Kim’s PAGA claim will be allowed to proceed.
Up to this point, some employers had been able to successfully avoid PAGA claims by arguing that the “aggrieved employee” was no longer aggrieved because their individual injuries had been resolved. After this decision, that argument is no longer viable, and employers will still face PAGA exposure even after all of the employee’s individual claims are resolved.
Stefanie Renaud is an associate in the Santa Monica office of Hirschfeld Kraemer LLP. She can be reached at email@example.com, or (310) 255-1818.