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California Workers Can Enforce ‘Deputy’ Law After Settling (2)

March 12, 2020, 5:05 PMUpdated: March 12, 2020, 7:29 PM

Workers can still sue employers under California’s unique law that deputizes them to enforce workplace laws even if they settle their individual claims, the state’s highest court unanimously ruled.

The California Supreme Court revived Justin Kim’s Private Attorneys General Act lawsuit accusing chain restaurant operator Reins International California Inc. of misclassifying training managers as overtime exempt and other violations. Kim settled his individual claims against Reins for $20,000 plus attorneys’ fees after a court enforced his arbitration agreement and stayed his PAGA lawsuit.

The ruling maintains workers’ ability to use PAGA to overcome mandatory arbitration agreements that otherwise protect employers from class action exposure. Although similar in ways to class actions, PAGA claims can’t be forced into private arbitration, the California Supreme Court ruled in 2014.

PAGA permits workers to take the place of state labor regulators and sue employers for violations of the California Labor Code on behalf of themselves, other affected workers, and the state of California. Workers who prevail on their PAGA claims must send 75% of penalties collected to the state. The law has generated nearly $170 million for the state in the past four years.

The California Supreme Court reversed an intermediate appellate court ruling that Kim lacked standing to proceed with his PAGA lawsuit. Kim’s settlement meant he was no longer an “aggrieved employee” able to bring a PAGA claim, the appellate court said.

In Thursday’s ruling, the state high court said PAGA’s text shows that lawmakers didn’t aim to link standing with maintaining an individual claim. The statute grants standing if a worker was the victim of “one or more” of the alleged violations, illustrating that standing isn’t inextricably tied to a worker’s own injury, the court said.

“Employees who were subjected to at least one unlawful practice have standing to serve as PAGA representatives even if they did not personally experience each and every alleged violation,” Justice Carol Corrigan wrote for the unanimous court. “This expansive approach to standing serves the state’s interest in vigorous enforcement.”

The justices also found support for their view of PAGA standing after settlement in the law’s purpose, other contexts in which it’s been applied, and the legislative history surrounding its passage.

The high court also called Reins’ litigation strategy in the case “troubling.” Reins settled only Kim’s individual claims. When they returned to court on the PAGA claim that was specifically carved out of the deal, the company argued that Kim lost standing, a “turnabout” that “was hardly fair play,” the court said.

Moreover, Reins offered the settlement under a section of the California Code of Civil Procedure that would have made Kim liable for his legal costs and all of the company’s costs after it made the offer if he failed to win a more favorable award in arbitration, the justices said.

If Kim had lost PAGA standing based on the settlement, he and workers in his situation would face a “Hobson’s choice: either reject the offer and risk incurring substantial liability for costs or accept the offer and lose the ability to pursue the PAGA claim,” the court said.

Kim’s attorney, Eric Kingsley of Kingsley & Kingsley, hailed the decision as a victory for workers and California.

“It prevents employers from buying themselves out of” PAGA lawsuits, Kingsley said. “They can’t buy off the named plaintiff so all of their exposure goes away.”

Reins’ lawyer, Spencer Skeen of Ogletree Deakins Nash Smoak & Stewart, didn’t respond to requests for comment.

The case is Kim v. Reins International, Cal., No. S246911, Decision 3/12/20.

(Updated with additional details, comment.)

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com