On Tuesday March 10, the California Supreme Court issued its long-awaited opinion regarding employee standing to file Private Attorney General Act (PAGA) claims in Kim v. Reins International Corporation.

A PAGA action is a form of representative qui tam action. An employee steps into the shoes of the government to sue an employer on behalf of all “aggrieved employees” for Labor Code violations. From PAGA’s enactment in 2014, employers across the state have faced an onslaught of suits authorizing significant penalties, previously only recoverable by California’s labor agencies. Three-fourths of the recovery goes to the state and the employee retains one-fourth, however there is one-way fee-shifting favoring the employee, which provides significant incentive to file a PAGA suit.

At issue in Kim was whether an employee who resolves his or her individual Labor Code claim can still be deemed an “aggrieved employee” and file a PAGA suit.  In a tough ruling for employers, the Court opined that an employee who resolves his or her Labor Code claim may still separately pursue a PAGA suit for so-called civil penalties.

The Court reasoned that a separate claim is permissible because a PAGA action is really one between the state and the employer, not the employee.  The damages sought in a PAGA claim are “civil penalties” which the Court likened to punitive damages and the Court noted the penalties are primarily paid to the state. The Court further ruled that employees need not be injured to recover PAGA penalties.  An employee need only establish the Labor Code was violated.

The implications of the Kim decision will be difficult for employers to reconcile. For example, PAGA penalties are seemingly recoverable for pay statement violations even if those cause no injury.  Similarly, PAGA penalties are recoverable even where employees are paid the hour statutory penalty for a missed meal or rest period.

The Kim settlement agreement did not include PAGA as part of the release, and in fact, expressly carved out the PAGA claim.  Thus, whether Kim would apply in a case where PAGA is explicitly released is questionable.  Kim does suggest even an individual settlement agreement explicitly waiving the right to bring a PAGA action may not be deemed valid because PAGA settlements require Court approval. This further calls into question the viability of Pick-Up Stix campaigns in PAGA suits.   Because of the unique procedural mechanisms of a PAGA claim, employers need not necessarily be concerned that individual settlements with former employees will result in the same employees bringing PAGA representative action claims.  Those former employees likely will be time-barred under the applicable one-year statute of limitations and/or will not have timely exhausted their administrative notice requirement for bringing such claims. Individual settlements with current employees, particularly in connection with correcting compliance issues, present greater challenges in terms of employers being able to preclude a subsequent PAGA claim.   At a minimum, employers will want to include an explicit PAGA waiver and other innovative settlement terms to try to ensure total closure in the individual settlement agreements reached with current employees.