Why it matters

A settlement of individual claims for wage and hour violations put an end to a plaintiff’s Private Attorneys General Act (PAGA) claims, a California appellate panel has affirmed. Justin Kim asserted that Reins International violated the state’s Labor Code by classifying him as exempt from overtime pay as a “training manager” at the defendant’s restaurant. While his PAGA claims were stayed pending arbitration, he settled his individual claims, dismissing them with prejudice. The employer then moved for summary judgment on the PAGA claims, arguing that Kim was no longer an “aggrieved employee” under the statute. The trial court agreed, and the appellate panel affirmed. By accepting the settlement and dismissing his individual claims against the employer with prejudice, Kim had essentially acknowledged that he no longer had any viable Labor Code-based claims against Reins and therefore no longer met the definition of an “aggrieved employee” under PAGA, the court said.

Detailed discussion

As a “training manager” for Reins International, Justin Kim was classified as exempt from overtime requirements. He filed suit, alleging individual and class claims for wage and hour violations and seeking civil penalties on behalf of the state and aggrieved employees pursuant to the Private Attorneys General Act (PAGA).

Based on an arbitration agreement Kim signed when he began working for Reins in 2013, the employer moved to compel arbitration of his individual claims and stay the PAGA cause of action until arbitration was complete. The trial court granted the motion.

While arbitration was pending, Reins served Kim with an offer to compromise under Code of Civil Procedure Section 998. Kim accepted the offer, dismissed his individual claims with prejudice and dismissed the class claims without prejudice. Only the PAGA cause of action remained, and the court lifted the stay and set a date for trial.

The employer then filed a motion for summary judgment, arguing that because the plaintiff dismissed his individual causes of action against Reins, he was no longer an “aggrieved employee” under PAGA and could not maintain the PAGA cause of action.

After the trial court agreed and dismissed the suit, Kim appealed.

The appellate panel began with PAGA’s definition of an “aggrieved employee”: “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.”

Kim failed to meet this definition, the court said.

“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 the PAGA, and therefore that particular plaintiff no longer maintains standing under PAGA.”

In order to bring an action under PAGA, an employee must have suffered harm. Pursuant to his allegations, Kim was an aggrieved employee at the time his complaint was filed, the panel wrote. But the statute was not intended to allow an action to be prosecuted by any person who did not have a grievance against his or her employer for Labor Code violations.

“Here, Kim initially asserted that he had been harmed by Reins’s alleged violations of the Labor Code,” the court said. “But by accepting the settlement and dismissing his individual claims against Reins with prejudice, Kim essentially acknowledged that he no longer maintained any viable Labor Code-based claims against Reins. As a result, following the dismissal with prejudice Kim no longer met the definition of ‘aggrieved employee’ under PAGA. Kim therefore did not have standing to maintain a PAGA action against Reins, and Reins’s motion to dismiss was properly granted.”

Kim argued that his dismissal of his Labor Code claims impacted only his PAGA standing and not that of other employees, or the state’s claim. The court agreed, noting that the dismissal did not reflect either the veracity of the PAGA allegations or the ability of any aggrieved employee in a position substantially similar to Kim’s to assert such PAGA claims. However, this did nothing to help the plaintiff’s claim, the court noted.

The plaintiff also told the court that affirming dismissal of the action effectuated a “backdoor PAGA waiver” in contravention of Iskanian v. CLS Transportation by effectively letting Kim’s arbitration agreement waive his right to pursue a PAGA claim.

“We disagree,” the panel wrote. “Kim’s lack of PAGA standing is unrelated to the court’s order to arbitrate the individual claims. … Kim’s acknowledgment that he no longer has any viable Labor Code claims against Reins—not the order relating to arbitrationis the fact that undermines Kim’s standing. The effect of arbitration on PAGA standing is not presented in this case, and we do not decide any such issue here.”

To read the opinion in Kim v. Reins International California, Inc., click here.