CA Court of Appeal Ruling Takes PAGA Standing By The Reins

Since its inception, the Private Attorneys General Act of 2004 (“PAGA”) has been a thorn in employers’ sides by allowing “aggrieved employees” to seek civil penalties on behalf of the State of California and other “aggrieved employees” for violations of the California Labor Code. In a small victory for employers, the California Court of Appeal recently bestowed a key limitation on what it means to be an aggrieved employee for purposes of PAGA standing. Specifically, the court held that an employee who settles his individual Labor Code claims against his employer no longer has standing as an “aggrieved employee” under PAGA.

In Kim v. Reins International California, Inc., 2017 WL 6629408 (Cal. Ct. App. Dec. 29, 2017), former Reins employee Justin Kim alleged individual and class wage and hour claims, and also sought civil penalties under PAGA on behalf of himself and other aggrieved employees. Kim signed an arbitration agreement upon hire. Based on that agreement, Reins successfully compelled Kim’s individual claims to arbitration, dismissed the class claims, and stayed the PAGA claim pending arbitration.

While arbitration was pending, Reins served Kim with a statutory offer to compromise under California Code of Civil Procedure section 998. Kim accepted the offer and dismissed his individual claims with prejudice. Shortly after, Reins moved for summary adjudication on the PAGA claim, arguing that Kim was no longer an “aggrieved employee” under PAGA because he settled his individual claims. The trial court granted summary adjudication, reasoning that, because Kim settled and dismissed his individual claims, he “was no longer suffering from an infringement or denial of his legal rights … [and] [h]is rights have been completely redressed.” Kim appealed.

Describing the issue as “straightforward,” the Court of Appeal affirmed, finding that PAGA’s legislative history makes clear that PAGA was not intended to allow an action to be prosecuted by a person who does not have a grievance for Labor Code violations. Because Kim accepted a settlement, he essentially admitted that he did not have any remaining viable Labor Code claims against Reins. Without any viable claims, Kim lost “aggrieved employee” status under PAGA and lacked standing. As the Court of Appeal explained, however, this only affects Kim’s standing as a PAGA representative. In other words, another aggrieved employee could still bring an identical suit under PAGA.

Reins has important implications for employers who are facing lawsuits that include both individual Labor Code and PAGA claims. The ruling increases employers’ potential to wipe out PAGA claims by settling and dismissing the plaintiff’s individual Labor Code claims through offers to compromise or settlements under California Code of Civil Procedure section 998. For more information on PAGA and how Kim v. Reins International California, Inc. may shape future PAGA claims, please contact an Orrick attorney.