Last week, in Kim v. Reins International California, Inc., No. S246911, after more than two years on review and extensive briefing by amicus curiae, the California Supreme Court unanimously resolved an issue of first impression concerning the Private Attorneys General Act (PAGA): whether settlement of individual Labor Code claims extinguishes PAGA standing.
California’s Labor Code contains a number of provisions designed to protect the health, safety, and compensation of workers. Among those laws, PAGA provides a mechanism for employees to enforce the Labor Code as the state’s designated proxy. In particular, PAGA authorizes “aggrieved employees” to pursue civil penalties on behalf of the state. Those penalties differ from statutory damages or other penalties an employee may recover individually for alleged Labor Code violations because relief under PAGA is intended to benefit the general public, not the party bringing the action.
Though the concept of standing traditionally turns on an individual having suffered an actual or threatened injury, the California Supreme Court rejected an “injury-based” view of standing for PAGA, where standing rests on the statute’s language, its underlying purpose, and legislative intent—all of which the Court held compelled the conclusion that an employee does not lose standing to prosecute a PAGA claim by settling his or her individual claims.
Justin Kim filed a class and PAGA representative action against Reins International California, Inc., a restaurant chain, on behalf of himself and other training managers for alleged wage and hour violations resulting from Reins classifying training managers as exempt from overtime. Reins successfully moved to compel arbitration, the lower court stayed the PAGA claim pending arbitration, and Kim settled his individual claims in exchange for dismissal with prejudice, leaving the PAGA claim for resolution. Reins then convinced the trial court to summarily dismiss the PAGA claim on the basis that, in accepting compensation and dismissing his claims with prejudice, Kim was no longer “aggrieved” and could not prosecute the PAGA claim. The Second Appellate District agreed, holding that the dismissal with prejudice “foreclosed his standing under PAGA.”
The Supreme Court’s Decision
The Court’s holding turns on the plain language of PAGA in which the Legislature defined the phrase “aggrieved employee.” According to the Court, the definition imposes only two requirements for standing: 1) the plaintiff was employed by the alleged violator; and 2) the plaintiff “personally suffered at least one Labor Code violation” on which he or she bases the PAGA claim. The Court rejected Reins’ argument that Kim’s “aggrieved employee” status ceased when he accepted compensation:
The Legislature defined PAGA standing in terms of violations, not injury. Kim became an aggrieved employee, and had PAGA standing, when one or more Labor Code violations were committed against him. (See § 2699(c).) Settlement did not nullify these violations. The remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself.
The Court refused to expand the statutory definition to require an economic injury or “add an expiration element.”
Beyond the statute, the Court considered PAGA’s purpose, context, and history in evaluating Reins’ “injury-based” viewpoint. In particular, the Court explained:
- PAGA differs from a conventional lawsuit and a class action; it is an enforcement action in which the state effectively deputizes an individual to pursue the state’s claim to recover civil penalties on the state’s behalf, “not to redress employees’ injuries.”
- An interpretation that would allow employers to reduce their liability outside the statutory scheme by settling individual claims would diminish the state’s recovery, contravene PAGA’s goal to strengthen Labor Code enforcement, and prevent enforcement of certain Labor Code provisions that do not create a private right of action.
- PAGA’s history shows the Legislature struck a balance in defining the phrase “aggrieved employee”; the Legislature added the definition to avoid PAGA suits by individuals that “suffered no harm,” but “conferred fairly broad standing” to employees subject to “at least one alleged violation” to pursue sanctions on the state’s behalf.
- Statutory standing differs from constitutional standing; the statutory language, purpose, and context of PAGA control, and courts are likely to interpret its provisions broadly to effectuate PAGA’s remedial purpose.
- PAGA nonetheless contains a standing requirement. While not as robust as Reins argued, a PAGA plaintiff must still suffer at least one alleged Labor Code violation that forms the basis of the lawsuit.
- Kim v. Reins does not address a PAGA plaintiff’s release of a PAGA claim through a valid and enforceable settlement agreement. The settlement agreement there expressly excluded the PAGA claim. Thus, an employer can still negotiate settlement of a PAGA claim, provide the requisite notice to the California Labor & Workforce Development Agency, and seek the trial court’s approval of the settlement under Labor Code § 2699(l)(2).