The California Court of Appeals held late last week that a plaintiff does not have standing to pursue California Private Attorneys General Act (PAGA) claims on behalf of the state or other employees once he accepts an offer to settle his individual claims. The court in Kim v. Reins International California, Inc. B278642 (Dec. 29, 2017), held that once the plaintiff accepted the settlement offer, he no longer qualified as an “aggrieved employee” within the meaning of the statute. The case expands the potential impact of offers of judgment in California wage-hour class actions.

In Kim, the plaintiff sued his former employer in a putative class action for state wage violations and civil penalties under PAGA. The employer successfully compelled arbitration of the plaintiff’s individual claims and the court stayed litigation of the PAGA claims. (California courts hold that PAGA claims are not subject to arbitration; the Ninth Circuit disagrees.)

The employer then served the plaintiff with an offer to compromise under California Code of Civil Procedure Section 998 (the cousin to Federal Rule of Civil Procedure 68). The employee accepted the offer and the plaintiff dismissed his individual state law wage claims with prejudice. The employer then moved for summary judgment on the remaining PAGA claim, arguing the plaintiff lacked standing under the statute because he no longer qualified as an “aggrieved employee.”

In affirming the trial court’s grant of summary judgment, the appellate court wrote: “We hold that where an employee has brought both individual claims and a PAGA claim in a single lawsuit, and then settles and dismisses the individual employment causes of action with prejudice, the employee is no longer an ‘aggrieved employee’ as that term is defined in PAGA.” In so holding, the court defined “aggrieved employee” narrowly as an employee or former employee who “maintain[s] viable Labor Code-based claims against” his/her employer. However, the court also noted that the dismissal affected only the plaintiff’s standing; other employees could file identical PAGA claims.

The court’s ruling increases the potential effectiveness of offers of judgment under either California Code of Civil Procedure Section 998 or Federal Rule of Civil Procedure 68, in that an accepted offer can now effectively wipe out both the state and federal wage claims, as well as the PAGA claims. However, as the California Court of Appeals in Kim noted, even accepted offers of judgment do not prevent other potential class members from bringing identical suits, so the strategy works well in only certain cases.