Employees Need Not Have Individual Claims to Bring PAGA Actions

In yet another unfavorable opinion for employers, a California Court of Appeal ruled an employee may maintain a representative action under the Private Attorney General Act of 2004 (“PAGA”) on behalf of “aggrieved employees” even though the employee’s own claims were time-barred.

In Johnson v. Maxim Healthcare Services, the employee signed an agreement containing a noncompete clause. The employee alleged a single cause of action for penalties under PAGA, arguing the employer violated Labor Code § 432.5.

The employer sought dismissal based on the employee’s claim being time-barred since she signed the Agreement three years earlier. The trial court agreed.

The employee appealed arguing that (1) she had standing because she is an aggrieved employee and exhausted all necessary administrative remedies; (2) the representative claims are not time-barred under PAGA because the employer is subject to penalties for any employees who signed the Agreement during the applicable statute of limitations period; and (3) she continues to be employed by the employer and is subject to the terms of the Agreement.

As the appeal was pending, the California Supreme Court issued its opinion in Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, which held an employee may maintain a PAGA action even after resolution and/or dismissal of the employee’s individual claims so long as the employee is an “aggrieved employee,” i.e., someone “‘who was employed by the alleged violator’ and ‘against whom one or more of the alleged violations was committed.’” Id. at 83-84; Lab. Code § 2699(c).

The main issue on appeal in Johnson was therefore “whether an employee, whose individual claim is time-barred, may still pursue a representative claim under PAGA.” Applying Kim, the Appellate Court answered, yes.

The Appellate Court rejected the employer’s argument that the plaintiff lacked standing because the plaintiff remained an employee and continued to be governed by the Agreement. Further, the employee alleged that the employer “persist[ed] in requiring employees to sign agreements that contain the prohibited terms.” Based on this, the court distinguished other cases finding the PAGA representative lacked standing.

In short, employers should ensure compliance with the Labor Code or else they risk PAGA representative claims, even by those employees who no longer have viable individual claims.

Jessica W. Rosen is an employment defense, franchise and business litigation attorney.