Kim v. Reins Int'l Cal., Inc., S246911

• Court: United States State Supreme Court (California)
• Writing for the Court: CORRIGAN, J.
• Citation: 9 Cal.5th 73,459 P.3d 1123,259 Cal.Rptr.3d 769
• Parties: Justin KIM, Plaintiff and Appellant, v. REINS INTERNATIONAL CALIFORNIA, INC., Defendant and Respondent.
• Decision Date: 12 March 2020
• Docket Number: S246911

9 Cal.5th 73
459 P.3d 1123
259 Cal.Rptr.3d 769

Justin KIM, Plaintiff and Appellant,
v.
REINS INTERNATIONAL CALIFORNIA, INC., Defendant and Respondent.

S246911

Supreme Court of California.

March 12, 2020

Kingsley & Kingsley, Eric B. Kingsley, Los Angeles, Ari J. Stiller and Lyubov Lerner, for Plaintiff and Appellant.

Cynthia L. Rice, Oakland, and Javier J. Castro, for California Rural Legal Assistance, Inc., California Rural Legal Assistance Foundation, California Employment Lawyers Association, Consumer Attorneys of California and Asian Americans Advancing Justice-LA as Amici Curiae on behalf of Plaintiff and Appellant.

Capstone Law, Ryan H. Wu, Melissa Grant and John E. Stobart, Los Angeles, for Bet Tzedek as Amicus Curiae on behalf of Plaintiff and Appellant.

Ogletree, Deakins, Nash, Smoak & Stewart, Spencer C. Skeen, Tim L. Johnson, Jesse C. Ferrantella, San Diego, and Jonathan H. Liu, for Defendant and Respondent.

Davis Wright Tremaine, Rochelle L. Wilcox, Janet L. Grumer and Aaron N. Colby, Los Angeles, for Restaurant Law Center, California Restaurant Association and Chamber of Commerce of the United States of America as Amici Curiae on behalf of Defendant and Respondent.

Fine, Boggs & Perkins, John P. Boggs, Half Moon Bay, and Cory J. King, San Marcos, for California New Car Dealers Association as Amicus Curiae on behalf of Defendant and Respondent.

Morgan, Lewis & Bockius, Barbara J. Miller, John D. Hayashi, Costa Mesa, and Thomas M. Peterson, San Francisco, for The Employers Group as Amicus Curiae on behalf of Defendant and Respondent.

Blank Rome, Laura Reathaford and Natalie Alameddine, Los Angeles, for Association of Southern California Defense Counsel as Amicus Curiae on behalf of Defendant and Respondent.

CORRIGAN, J.

259 Cal.Rptr.3d 773

9 Cal.5th 80

This case presents an issue of first impression: Do employees lose standing to pursue a claim under the Labor Code Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq. )¹ if they settle and dismiss their individual claims for Labor Code violations? We conclude the answer is no. Settlement of individual claims does not strip an aggrieved employee of standing, as the state’s authorized representative, to pursue PAGA remedies.

I. BACKGROUND

A. Legal Overview

California’s Labor Code contains a number of provisions designed to protect the health, safety, and compensation of workers. Employers who violate these statutes may be sued by employees for damages or statutory penalties. (See, e.g., § 203; see also Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103-1104, 56 Cal.Rptr.3d 880, 155 P.3d 284 [distinguishing wages from statutory penalties].) Statutory penalties, including double or treble damages, provide recovery to the plaintiff beyond actual losses incurred. ( Murphy , at p. 1104, 56 Cal.Rptr.3d 880, 155 P.3d 284.) Several Labor Code statutes provide for additional civil penalties, generally paid to the state unless otherwise provided. (E.g., § 225.5.) Before PAGA’s enactment, only the state could sue for civil penalties. ( Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 378, 173 Cal.Rptr.3d 289, 327 P.3d 129 ( Iskanian ).) A few Labor Code violations are punishable as criminal misdemeanors. (E.g., § 215.)

459 P.3d 1127

9 Cal.5th 81

Government enforcement proved problematic. As to criminal violations, local prosecutors often directed their resources to other priorities. ( Iskanian , supra , 59 Cal.4th at p. 379, 173 Cal.Rptr.3d 289, 327 P.3d 129.) The Labor Commissioner and other agencies were likewise hampered in their enforcement of civil penalties by inadequate funding and staffing constraints. ( Ibid . ) To facilitate broader enforcement, the Legislature enacted PAGA, authorizing "aggrieved employees" to pursue civil penalties on the state’s behalf. (§ 2699,

259 Cal.Rptr.3d 774

subd. (a); see Williams v. Superior Court (2017) 3 Cal.5th 531, 545, 220 Cal.Rptr.3d 472, 398 P.3d 69 ( Williams ).) "Of the civil penalties recovered, 75 percent goes to the Labor and Workforce Development Agency, leaving the remaining 25 percent for the ‘aggrieved employees.’ " ( Arias v. Superior Court (2009) 46 Cal.4th 969, 980-981, 95 Cal.Rptr.3d 588, 209 P.3d 923 ( Arias ).)

An employee seeking PAGA penalties must notify the employer and the Labor and Workforce Development Agency (LWDA) of the specific labor violations alleged, along with the facts and theories supporting the claim. (§ 2699.3, subd. (a)(1)(A); see Arias , supra , 46 Cal.4th at p. 981, 95 Cal.Rptr.3d 588, 209 P.3d 923.) If the agency does not investigate, does not issue a citation, or fails to respond to the notice within 65 days, the employee may sue. (§ 2699.3, subd. (a)(2).) The notice requirement allows the relevant state agency "to decide whether to allocate scarce resources to an investigation." ( Williams , supra , 3 Cal.5th at p. 546, 220 Cal.Rptr.3d 472, 398 P.3d 69.)

A PAGA claim is legally and conceptually different from an employee’s own suit for damages and statutory penalties. An employee suing under PAGA "does so as the proxy or agent of the state’s labor law enforcement agencies ." ( Arias , supra , 46 Cal.4th at p. 986, 95 Cal.Rptr.3d 588, 209 P.3d 923, italics added.) Every PAGA claim is "a dispute between an employer and the state ." ( Iskanian , supra , 59 Cal.4th at p. 386, 173 Cal.Rptr.3d 289, 327 P.3d 129 ; see id . at p. 384, 173 Cal.Rptr.3d 289, 327 P.3d 129 ; Arias , at p. 986, 95 Cal.Rptr.3d 588, 209 P.3d 923.) Moreover, the civil penalties a PAGA plaintiff may recover on the state’s behalf are distinct from the statutory damages or penalties that may be available to employees suing for individual violations. ( Iskanian , at p. 381, 173 Cal.Rptr.3d 289, 327 P.3d 129.) Relief under PAGA is designed primarily to benefit the general public, not the party bringing the action. ( Arias , at p. 986, 95 Cal.Rptr.3d 588, 209 P.3d 923 ; Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 501, 128 Cal.Rptr.3d 854 ( Brown ).) "A PAGA representative action is therefore a type of qui tam action," conforming to all "traditional criteria, except that a portion of the penalty goes not only to the citizen bringing the suit but to all employees affected by the Labor Code violation." ( Iskanian , at p. 382, 173 Cal.Rptr.3d 289, 327 P.3d 129.) The "government entity on whose behalf the plaintiff files suit is always the real party in interest." ( Ibid . )

Not every private citizen can serve as the state’s representative. Only an aggrieved employee has PAGA standing. (§ 2699, subd. (a);

9 Cal.5th 82

Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1003, 1005, 95 Cal.Rptr.3d 605, 209 P.3d 937 ( Amalgamated Transit ).) An "aggrieved employee" is defined as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed." (§ 2699, subd. (c); hereafter § 2699(c).)² We have held that employee unions lack standing to bring PAGA claims because the associations are not "employed by" the defendants. (§ 2699(c); see Amalgamated Transit , at pp. 1004-1005, 95 Cal.Rptr.3d 605, 209 P.3d 937.) Here, plaintiff Justin Kim settled his own Labor Code claims against defendant Reins International California, Inc. (Reins). The question

259 Cal.Rptr.3d 775

is whether he retains standing to prosecute a representative PAGA claim.

B. Facts of this Case

Reins operates restaurants in California and employed Kim as a "training manager," a position it classified as exempt from overtime laws. Kim later sued Reins in a putative class action, claiming he and other training managers had been misclassified. The operative

459 P.3d 1128

complaint alleged causes of action for failure to pay wages and overtime (§ 1194); failure to provide meal and rest breaks (§ 226.7); failure to provide accurate wage statements (§ 226, subd. (a)); waiting time penalties (§ 203); and unfair competition ( Bus. & Prof. Code, § 17200 ). It also sought civil penalties under PAGA (§ 2699).

Based on an agreement Kim signed when he was hired, Reins moved to compel arbitration of the "individual claims" for Kim’s own damages. The motion also sought to dismiss the class claims and stay the PAGA claim until arbitration was complete. Reins acknowledged that the PAGA claim could not be waived (see Iskanian , supra , 59 Cal.4th at pp. 382-384, 173 Cal.Rptr.3d 289, 327 P.3d 129 ) or arbitrated under the parties’ agreement. The court dismissed Kim’s class claims and ordered arbitration of all remaining claims except the PAGA claim and the injunctive relief portion of the unfair competition claim. The PAGA litigation was stayed until arbitration was complete. Several months later, Reins served a statutory offer to settle all of Kim’s "individual claims" for $20,000, attorney’s fees, and costs. (See Code Civ. Proc., § 998.) Kim accepted. In exchange,...