California Supreme Court Rules That Employees Who Have Settled Their Individual Wage And Hour Claims May Still Pursue Representative PAGA Claims As “Aggrieved Employees.”

In an issue of first impression, and an important loss for employers, the California Supreme Court recently decided that employees still can pursue claims under the California Labor Code Private Attorneys General Act of 2004 ("PAGA") even if they settle and dismiss their individual claims for California Labor Code violations. As explained more fully below, the Court ruled that an employee’s settlement of individual claims is irrelevant in a PAGA suit; the employee can still be considered an "aggrieved employee" under PAGA and, therefore, can pursue PAGA remedies as the state’s authorized representative on behalf of all aggrieved employees.

In this lawsuit, Reins International California, Inc. ("Reins"), a restaurant operator, employed the plaintiff as a training manager and classified him as exempt. The plaintiff later sued Reins in a putative class action, alleging he and other training managers were misclassified. The plaintiff sought various back wages and civil penalties under PAGA. After the plaintiff settled his individual claims, Reins moved for summary adjudication on the grounds that the plaintiff lacked standing to pursue the PAGA claims as he was no longer an "aggrieved employee" given that his rights had been redressed by the settlement and dismissal of his individual claims. The trial court and appellate court both agreed. The California Supreme Court then granted review to determine whether the settlement of the plaintiff’s individual Labor Code claims eviscerated his standing to continue to pursue the PAGA representative claims.

What Did the Court Conclude and Why?

The California Supreme Court disagreed with the lower courts and found that the plaintiff’s settlement had no impact on his PAGA representative claims. Specifically, the Court based its decision on the following:

  • PAGA’s purpose is to allow individuals to act in the stead of the state, recovering 75% of the penalties on behalf of the Labor and Workforce Development Agency (the "LWDA") and leaving the remaining 25% of the penalties to the aggrieved employees. Thus, the government is the real party in interest in these cases – not the individual.
  • PAGA provides that any "aggrieved employee" – defined as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed" – is authorized to bring a PAGA claim on behalf of the state. Cal. Labor Code § 2699(c).
  • PAGA’s definition of an aggrieved employee does not require that an employee claim that an economic injury resulted from the violation – only that an alleged violation occurred. According to the Court, if the legislature intended to limit standing in PAGA claims to only those with compensatory damages claim, it would have so worded the statute.
  • PAGA claims are unlike conventional civil suits as they are enforcement actions between the LWDA and the employee, as the plaintiff acts on behalf of the government, and the recoverable civil penalties are meant to deter future violations and remediate present ones, not to compensate employees for injuries.
  • PAGA actions differ from class actions, which are focused on individual claims that are consolidated for efficiency; there is no individual component to a PAGA claim.
  • Because PAGA suits involve penalties for violations that occur per pay period, if individuals who settled claims were excluded from those penalties, the state’s and employee’s recovery of penalties would be diminished, thereby allowing employers to resolve these claims without the safeguard of PAGA settlements, which require court approval and notice to the LWDA.
  • PAGA’s language expressly authorizes that PAGA suits may be brought separately from individual claims of relief.
  • PAGA actions can be based on a wide range of Labor Code violations, many of which do not allow for individual damage suits by employees.

For all of these reasons, the Court held that settling individual claims has no effect on the standing of the representative plaintiff in a PAGA action, which is brought on behalf of the state. The PAGA lawsuits may continue.

What is the Impact on Employers?

Given this holding, it is important for employers to realize that, whereas there are many benefits to settling individual wage and hour violations, such a settlement will have no effect on any PAGA claims that have or could be filed in court. Similarly, severance and general release agreements that employers routinely provide to departing employees may not restrict the employee’s ability to later bring a PAGA representative claim. Whether you are arbitrating individual claims or litigating them, PAGA claims are separate and will continue to be asserted unless separately settled with Court approval. Therefore, employers should work closely with their employment counsel to develop settlement strategies when faced with individual wage and hour claims, along with PAGA claims.

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