State Supreme Court overturns appellate, trial court in key labor case

Employees can still pursue civil claims on behalf of the state if they settle their individual wage claims, the California Supreme Court ruled Thursday, overturning an appellate decision the petitioner warned "could spell the end of litigation under the California Labor Code's Private Attorneys General Act."

The 7-0 decision, written by Justice Carol A. Corrigan, focused on legislative intent in concluding PAGA standing is not limited to only employees with unresolved compensatory claims, embracing a broad construction justices said represents the Legislature's desire "to ensure effective code enforcement."

"Requiring the existence of an unredressed injury to support standing would be problematic for PAGA suits to enforce the many Labor Code statutes that do not create a private right to sue," Corrigan wrote. "Indeed, the very reason the Legislature enacted PAGA was to enhance enforcement of provisions punishable only through government-initiated proceedings." Kim v. Reins International California, Inc., S246911 (Cal. 2020).

Plaintiff attorney Eric B. Kingsley, who argued the case on Jan. 7, called the decision "a huge win for workers and the State of California."

"It allows private attorney generals to continue to prosecute labor code violations on behalf of the state," which further disincentives those violations, said Kingsley, a partner at Kingsley & Kingsley in Encino.

After unexpected defeats in the trial and appellate courts, "I guess my faith in the legal system is vindicated now," Kingsley said.

Kingsley represents Justin Kim, who sued his former employer, Reins International California, Inc., for misclassifying he and other training managers at its Japanese-style restaurant chains as exempt from overtime laws. Los Angeles County Superior Court Judge Kenneth R. Freeman dismissed the class claims in 2016 and ordered arbitration, but not for Kim's PAGA claim.

Still, after Kim settled his individual claims for $20,000, Reins' lawyers at Ogletree, Deakins, Nash, Smoak & Stewart, PC argued Kim lacked standing to bring the PAGA claim.

Freeman agreed, concluding Kim was no longer an aggrieved employee, the only kind of person with PAGA standing. The 2nd District Court of Appeal affirmed Freeman in a 2017 decision authored by Audrey B. Collins and concurred with by Justices Norman L. Epstein and Nora M. Manella.

But the high court on Thursday called Reins' logic "illusive" and said the assertion that a PAGA plaintiff loses standing upon individual settlement "at odds with the Legislature's explicit definition."

Settlements don't nullify Labor Code violations because, the opinion said, "The remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself."

"Reins's interpretation would add an expiration element to the statutory definition of standing. It would expand section 2699(c) to provide that an employee who accepts a settlement for individual damage claims is no longer aggrieved," according to the opinion. "Of course, the Legislature said no such thing."

Ogletree shareholder Spencer C. Skeen, the lead defense counsel, was not available for comment on Thursday. In January's oral argument, he described the issue as nuanced, with the rule being "it depends." If the individual claims and PAGA claim don't completely overlap, "then perhaps you can have a PAGA claim still viable after the dismissal of individual claims," Skeen said.

"But when a PAGA is completely derivative of individual claims, and those individual claims are dismissed with prejudice, the employee loses standing," he added.

In his argument, Kingsley reminded justices of PAGA's origins and said it "filled that void" created by arbitration's hindrance of class actions.

He said the so-called "Kim rule" that should arise from his client's case is simple: "You can't settle a PAGA action except when you're settling a PAGA action."

Justices agreed with Kingsley, saying Skeen's narrower construction "would thwart the Legislature's clear intent to deputize employees to pursue sanctions on the state's behalf." The opinion cited two recent appellate rulings "consistent with our interpretation of standing," Raines v. Coastal Pacific Food Distributors, Inc., 23 Cal. App. 5th 667 (Cal. App. 2nd Dist. May 22, 2018) and Lopez v. Friant & Associates, LLC, 15 Cal. App. 5th 773 (Cal. App. 1st Dist. Sept. 26, 2017).

The California Rural Legal Assistance, Inc., submitted an amicus brief for the plaintiff on its behalf as well as the California Employment Lawyers Association, Consumer Attorneys of California and Asian Americans Advancing Justice-LA. Capstone Law APC submitted a plaintiff's side amicus for Bet Tzedek Legal Services.

The defense had supporting amicus briefs from Davis Wright Tremaine LLP on behalf of the Restaurant Law Center, California Restaurant Association and Chamber of Commerce of the United States of America; from Blank Rome LLP for the Association of Southern California Defense Counsel; from Morgan, Lewis & Bockius LLP for the The Employers Group; and from Fine, Boggs & Perkins LLP for the California New Car Dealers Association.