On March 12, 2020, the California Supreme Court held in Kim v. Reins International California, Inc. that employees who
settle and release their individual wage and hour claims still have
standing to bring a representative action for civil penalties based on the
same legal violations under the California Private Attorney
General Act (PAGA),
which deputizes “aggrieved employees” to act as private attorneys
general and pursue civil penalties on behalf of similarly “aggrieved”
current and former employees.
In Reins, plaintiff Justin Kim brought a putative class action
against his employer, alleging that he and other training managers were
misclassified as exempt employees. The lawsuit included claims for unpaid
wages and overtime, meal and rest break violations, inaccurate wage
statements and waiting time penalties. Kim also asserted a PAGA
representative action claim for civil penalties premised entirely on the
same alleged statutory violations on which Kim based his individual wage
and hour claims.
Because Kim and his employer had entered into an arbitration agreement with
a class action waiver, the employer successfully moved to compel Kim to
arbitrate his individual claims. This precluded the class action claims
from proceeding at all, but the court also stayed Kim’s PAGA representative
action claim until the arbitration of his individual claims was completed.
Kim subsequently settled and agreed to dismiss with prejudice his
individual claims. Notably, not only did the settlement not include the
PAGA claim, but the parties expressly agreed that it was carved out of the
release and the subsequent dismissal with prejudice.
Based on the settlement, the court lifted the stay on the PAGA claim. The
employer, in turn, moved for summary judgment on the grounds that Kim
lacked standing to pursue a PAGA representative claim because he had
released his individual claims that were based on the same violations. The
trial court agreed with the employer and determined that Kim’s settlement
with his employer had “completely redressed” his individual claims, and,
therefore, he was no longer an aggrieved employee with standing to pursue
his PAGA claim. The California Court of Appeal affirmed, and the California
Supreme Court then granted review.
California Supreme Court Ruling
On review, the California Supreme Court reversed, holding that a settlement
of an employee’s individual wage and hour claims does not strip the
employee of standing to pursue a PAGA claim as the state’s “authorized
In reaching this conclusion, the Supreme Court relied on a number of
characteristics of a PAGA claim. In particular, the court noted that a PAGA
claim is “legally and conceptually” different from an employee’s individual
claim because an employee bringing a PAGA claim does so as the proxy or
agent of the state. In other words, a PAGA claim is one between the
employer and the state. The court also noted that the civil penalties
recoverable under PAGA are not available to employees who sue on their own,
individual behalf, and that, in many circumstances, employees do not even
have a private right of action to pursue individual damages for certain
Labor Code violations.
The court held that PAGA’s statutory language sets forth only two
requirements for a current or former employee to have standing as an
“aggrieved employee” who can bring a representative action for civil
penalties: (1) an employment relationship with the alleged violator; and
(2) suffering one or more wage and hour violations. The Supreme Court found
that Kim satisfied both of these requirements and thus had standing to
pursue his PAGA representative action, notwithstanding his release of his
The court also explained that its decision was supported by PAGA’s
statutory purpose, which is to “empower employees to enforce the Labor Code
as representatives” of the state, and to “remediate present violations and
deter future ones” — not to redress past injuries. Thus, the court reasoned
that standing under PAGA, which is linked mainly to the fact that a
violation has occurred, is not lost when the underlying injury has
been remedied through a monetary settlement.
In rejecting the employer’s position that Kim’s settlement extinguished his
PAGA claim, the court reasoned that such an interpretation was contrary to
the statutory scheme because it would allow employers to diminish (or
eliminate) their liability for civil penalties without the settlement
safeguards afforded under PAGA — namely, notice to the California Labor and
Workforce Development Agency and court approval. The court further reasoned
that PAGA does not require that individual claims be brought in the same
action, and nothing in the statute or its legislative history requires that
the plaintiff have a separate, unresolved claim or unredressed injury.
Rather, according to the court, PAGA’s broad remedial purpose was intended
to deputize any employee who experienced at least one violation. Therefore,
allowing the settlement of an employee’s individual claims to preclude that
employee’s ability to pursue a PAGA representative action (or claim) would
“thwart the Legislature’s clear intent to deputize employees to pursue
[PAGA penalties] on the state’s behalf.”
Consequences for Employers
presents new challenges in bringing finality to an employee’s individual
wage and hour claims without exposing the employer to civil penalties under
PAGA. Note, however, that the procedural landscape that allowed for this
unfortunate ruling was that Kim had already brought a PAGA representative
action and the parties’ settlement agreement expressly carved out that PAGA
claim. In fact, the Supreme Court expressed concern as to why, under those
circumstances, the employer would even have attempted to assert that Kim’s
standing to continue pursuing the PAGA claim was extinguished, when that is
exactly what it had agreed to permit. Thus, Reins may be viewed as
an example of bad facts truly making for bad law.
Because of that unique procedural posture, employers need not
necessarily be concerned that individual settlements with former employees
will result in the same employees bringing PAGA representative action
claims. In most cases, those former employees will be time-barred under the
applicable one-year statute of limitations and/or will not have timely
exhausted their administrative notice requirement for bringing such claims.
Individual settlements with current employees, particularly in
connection with remediating compliance issues, present greater challenges
in terms of employers being able to preclude a subsequent PAGA claim.
Employers will need to develop creative settlement agreement provisions
and/or mechanisms to find a new path to achieving total closure without a
court-approved PAGA representative action settlement. Ultimately, of
course, the best protection for employers is still to take proactive
measures to ensure compliant employment policies and practices, especially
in the wage and hour area.
For additional information regarding Reins and its impact on
employer policies in California, please contact the authors or any other
member of McGuireWoods’ Labor & Employment Department.