California Supreme Court Deals Another Blow to Employers on PAGA
Today, the California Supreme Court issued its decision in Kim v. Reins International, holding that even if an employee-plaintiff accepts money to settle and dismiss his individual wage and hour claims, he still retains “standing” to represent other allegedly aggrieved employees and sue an employer on their behalf. Given the state high court’s past employee-friendly interpretations of PAGA, today’s ruling comes as no real surprise, but it is one more reminder that neither the state legislature nor the state courts seem to care about doing anything to remedy the abuse of the many victimless, attorney-created PAGA lawsuits that are plaguing employers in the state.
In the Reins case, the employee-plaintiff, Kim, worked as a training manager for Reins, which operates restaurants in California. Kim sued Reins for various wage and hour violations, all premised on the allegation that he was misclassified as an exempt employee and denied overtime and other Labor Code protections for hourly workers. Kim alleged several individual claims and a representative claim for penalties under PAGA. PAGA, of course, is a statute that allows employees to seek civil penalties from an employer on behalf of all aggrieved employees for underlying violations of the Labor Code. In other words, PAGA does not impose any affirmative obligations on employers and an employer cannot violate PAGA itself. PAGA simply provides an additional monetary penalty that employees can collect for the underlying Labor Code violation. The unusual thing about PAGA is that an employee suing under PAGA is deemed to be standing in the shoes of the state and suing as a “private attorney general.” The legislature purportedly enacted this in order to allow private employees (i.e. plaintiffs’ attorneys) to help the state do its job in enforcing wage and hour laws and punishing non-compliant employers.
During the litigation between Kim and Reins, Reins made a settlement offer to Kim to settle all of his individual wage and hour claims for $20,000. Kim accepted the deal and dismissed his individual claims. This left the “representative” PAGA claim outstanding. As for that claim, Reins appropriately sought for it to be dismissed as well, arguing that Kim no longer had “standing” to sue because he had no remaining injury to redress. This makes sense under traditional legal principles of standing. The Court of Appeal agreed with Reins, but Kim successfully sought review by the California Supreme Court.
In today’s ruling, the California Supreme Court held that a plaintiff does not lose standing to maintain a representative PAGA claim, even if the plaintiff settles all of his underlying claims (the alleged violations that support the derivative PAGA claim). The Court reasoned that a PAGA action is an action between “the state” and an employer, not between any individual employee and the employer. As such, the settlement of the named plaintiff’s claims does not impact the viability of the PAGA claim. In so holding, the Court also signaled its approval for an earlier, equally unconscionable ruling by a California Court of Appeal in Huff v. Securitas, which disregarded well-established principles of standing by holding that an employee can sue an employer for violations that he did not personally even suffer, as long as he can prove that he suffered at least one violation.
This is yet another bad decision in the area of PAGA litigation. In recent years, the state’s high court has held (1) that PAGA claims are exempt from arbitration agreements; (2) that a PAGA plaintiff can sue on behalf of all employees without even needing to satisfy class action requirements; (3) that a PAGA plaintiff is entitled to class-wide discovery regarding other employees, without satisfying class action requirements; and, now, (4) that a PAGA plaintiff can sue on behalf of other employees for claims he did not even suffer, and can do so even if he settles all of his own individual claims.
The legislature and the courts continue to turn a blind eye to the fact that the vast majority of PAGA lawsuits are pure shakedown lawsuits manufactured by plaintiffs’ attorneys, who recover about 35% of any settlement or judgment in a PAGA case. Commonly, an employee seeks out the lawyer not because the employee has a single gripe about pay, meal or rest breaks, or the accuracy of his wage statements, but instead because he feels he has been wrongfully terminated. The attorney quickly sees that a wrongful termination action isn’t the best means to achieve a significant attorney fee award, so the attorney convinces the employee to sue under PAGA for all manner of Labor Code violations instead. Taking a plaintiff’s deposition in one of these cases is telling as a result. The plaintiff often does not even know why he is suing or that he is doing so on behalf of anyone but himself. PAGA, in actual practice, isn’t about protecting employees. It’s about lining the pockets of the plaintiffs’ lawyers. Nothing more. Today’s decision helps that cause.