California Employees May Sue for Civil Penalties, Even After Settling Individual Claim

Among the many legal issues that the PAGA has presented, one question has been whether an employee still has standing to sue for civil penalties after settling his or her own individual claims. Commonly, an employee brings individual claims seeking wages or statutory penalties under the Labor Code, while simultaneously or even later suing for civil penalties under PAGA for the same alleged Labor Code violations.

In Kim v. Reins International California, Inc., the California Supreme Court recently held unanimously that an employee still may pursue a PAGA claim, even after settling his or her individual claims. In that case, an employee sued his former employer, alleging individual and class claims for alleged wage and hour violations. The lawsuit also sought civil penalties under PAGA. The trial court dismissed the putative class claims, ordering the employee’s individual claims to arbitration, but staying the PAGA claim pending the arbitration. Eventually, the plaintiff settled his individual claims. Based on that settlement, the employer successfully obtained dismissal of the PAGA claim on the ground that the employee lacked standing and thus was no longer an “aggrieved employee” under PAGA. The trial court and the court of appeal agreed. 

The California Supreme Court reversed. It concluded that the ability to sue for civil penalties under PAGA does not depend on whether a plaintiff already settled his or her related individual claims. The Supreme Court held that the fact an employee accepted compensation for an alleged injury did not remove PAGA standing, which the California Legislature defined “in terms of violations, not injury.” As the court explained, an employee becomes an “aggrieved employee” by experiencing one or more Labor Code violations. Thus, “[s]ettlement did not nullify those violations. The remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself” and does not excuse the violation. Consequently, the requirement that an employee be “aggrieved” is not synonymous with “having an unredressed injury” or a separate, unresolved individual claim.

The Supreme Court also recognized that PAGA claims are different from a class-action lawsuit. In a class action, a plaintiff who voluntarily settles his or her individual claims no longer has an interest in the class action and loses the ability to represent the class. A PAGA action, however, is a different type of case, involving a representative action seeking civil penalties otherwise recoverable by the state. A PAGA plaintiff does not have to satisfy class action requirements. The Supreme Court held that an “injury-based view of standing” – depending on an unresolved individual claim – “would deprive many employees of the ability to prosecute PAGA claims, contrary to the statute’s purpose to ensure effective code enforcement.” It further concluded that standing on PAGA claims “cannot be dependent on the maintenance of an individual claim because individual relief has not been sought” through a PAGA claim.

PAGA lawsuits have continued to proliferate in California, with claims or potential claims under the law representing a significant burden and consideration for employers. The Kim decision likely will be a major consideration from a strategic standpoint, as employers no longer might eliminate or foreclose a PAGA claim through a settlement of individual claims. Rather, employers will need to look at settlements that specifically cover or otherwise address PAGA claims. In any event, they also should focus on compliance under the Labor Code in order to avert PAGA claims in the first place.