The California Supreme Court released their long-awaited opinion in the case of Kim v. Reins International, Inc. This opinion significantly impacts defense strategies pertaining to litigation and settlement for organizations facing claims under the Private Attorneys General Act (“PAGA”). In a unanimous decision, the California Supreme Court overturned the Appellate Court and held that a plaintiff who settles individual employment claims will retain standing to bring a claim for civil penalties under PAGA on behalf of aggrieved employees and the State of California.
This case stems from an employee, Justin Kim, who sued his former employer, Reins International Inc., for damages and penalties as an individual, a class representative, and an aggrieved employee under PAGA. Reins International moved the trial court to compel arbitration pursuant to an enforceable arbitration agreement. The trial court granted the motion, dismissed Kim’s class claims, ordered his individual employment claims to arbitration, and stayed his claims for PAGA penalties and injunctive relief pending the conclusion of arbitration. While arbitration was pending, Kim settled and dismissed his individual claims, leaving the PAGA claims for resolution. Reins International then filed a motion for summary adjudication arguing that Kim was precluded from pursuing claims under PAGA because he was no longer an “aggrieved employee” due to the individual settlement. The Superior Court granted the motion finding that Plaintiff lacked standing to continue prosecuting a PAGA claim after settling his individual employment claims, which was upheld by the appellate court, and the California Supreme Court reversed.
The Legislature enacted PAGA to authorize aggrieved employees to pursue civil penalties on the state’s behalf. Under PAGA, an “aggrieved employee” may bring a representative action seeking civil penalties on a representative basis. (Cal. Lab. Code §§ 2698, et seq.) PAGA defines an “aggrieved employee” as “any person who was employed by the alleged violator and against whom one or more of the allege violations was committed.” (Cal. Lab. Code § 2699 (c).) As such, an aggrieved employee suing under PAGA serves as a proxy or agent of the state’s labor law enforcement agencies, and a PAGA claim is a dispute between an employer and the state. Therefore, PAGA civil penalties are distinct from statutory damages or penalties that are available to employees for individual violations. Relief under PAGA is designed primarily to benefit the general public, not the party bringing the action, and economic injury is not required to obtain civil penalties under PAGA. By that interpretation, Kim had standing as an “aggrieved employee” to bring a PAGA claim even if his individual claims were settled and dismissed. Importantly, the Court also held that 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.
To that end, the Court held that the statutory language of PAGA defines standing in terms of violation and not injury. (Kim v. Reins International California, Inc. (Mar. 12, 2020, No. S246911) ____Cal.4th ____ [p. 7].) The Court drew similarities with meal period and rest break violatons under Labor Code Section 226.7, where it held the settlement “does not excuse a 226.7 violation.” (Kim v. Reins International California, Inc. (Mar. 12, 2020, No. S246911) ____Cal.4th ____ (citing Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1256).) The Court further distinguished PAGA claims from typical individual and class claims. By doing so, the Court held that a plaintiff can maintain a PAGA claim even if the individual claims have settled. (Kim v. Reins International California, Inc. (Mar. 12, 2020, No. S246911) ____Cal.4th ____ [pp. 10-12].) Ultimately, California’s highest court held that the dismissal of a PAGA claim in this context would prejudice other aggrieved employees and the State’s ability to obtain civil penalties.
As this decision is reviewed by practitioners all over the state, we anticipate that Kim v. Reins will prompt a tidal wave of PAGA claims that could be filed in conjunction with or separate from individual employment claims. With the newfound tenacity of PAGA claims, employers are cautioned to approach litigation and settlement strategies with a focus on avoiding the potential that plaintiffs will vehemently seek to take several bites of the apple.
For guidance and further recommendations, please contact Jamie L. Gross, Linh T. Hua, and David K. Bock at Gordon Rees Scully Mansukhani, LLP to discuss the impact of Kim v. Reins International Inc. and develop the strongest defenses against pending and potential litigation.