By Nicholas Grether, The Maloney Firm, APC
 
California employers are aware that representative actions under the Private Attorneys General Act (“PAGA”) can result in significant liability. Today, the California Supreme Court handed down its ruling in Kim v. Reins International California, Inc. (March 12, 2020, S246911) __ Cal.5th __. Significantly, the Court held that an employee who had settled his individual wage and hour claims was not barred from pursuing a PAGA claim. In response to this ruling, employers should be mindful when settling claims with their employees.
 
In Kim, an employee brought individual wage and hour claims and sought civil penalties under the PAGA on behalf of other employees. To bring a PAGA action, an employee must be an “aggrieved person,” meaning they can claim at least one Labor Code violation. The employer successfully moved the individual claims to arbitration and the PAGA representative claims were stayed. The employee then settled his individual claims, and returned to the trial court to pursue his PAGA claim.
 
The employer successfully moved for summary adjudication of the PAGA claim, arguing the employee lacked standing because his settlement meant he was no longer an “aggrieved person.” The California Supreme Court disagreed, finding the employee did not lose his standing as a PAGA representative. The Court noted that it was not necessary for an employee to claim an economic injury. As the court noted in Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1256, payment of the statutory remedy for missed breaks “does not excuse a section 226.7 violation.” Thus, even an employee who was compensated for his individual wage and hour claims may still qualify as an “aggrieved person.”
 
Nor was the Court persuaded that the settlement had any preclusive effect to bar a PAGA claim. The employee brought his individual claims and PAGA claim at the same time. Due to an arbitration agreement, he was forced to arbitrate his individual claims first, so the employee was not trying to file a second action. The Court also observed that the settlement offer referred specifically to the employee’s “individual claims,” and not the PAGA, and it would be unfair to prevent the employee from pursuing claims that were specifically excluded from the earlier settlement. Additionally, the Court also cast doubt on whether settling individual claims would bar a subsequent lawsuit under the PAGA.
 
Bottom Line: Employers can no longer presume that a release of individual wage and hour claims will bar an employee from pursuing a representative action under the PAGA. Careful attention should be paid to settlement agreements to ensure they are clear about what claims are being released.
 
About the Author:
 
Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this alert, contact Nicholas Grether at ngrether@maloneyfirm.com.