You settled your employee's dispute, but he continued the fight!
An important yet often overlook goal in your relations with your employees should be to avoid a dispute that leads to litigation.
But, despite the best efforts of the best employers, an employee may quit believing he or she was not paid correctly or was treated unfairly, and sometimes inadvertent payroll mistakes or Labor Code violations occur. There are several tracks these disputes can take, and here is one example of a track commonly taken through litigation recently, with “you” as the employer:
One of your former disgruntled employees sued your business (and you personally!) in a class action for wages and for civil penalties payable to the State (under PAGA, discussed below.) Thankfully, you had a good Dispute Resolution Plan that required your employee to waive class actions and jury trials in favor of binding arbitration. (You do have a Dispute Resolution Plan, right? If not, why not!)
During any employment dispute as occurred in this example, it is very common to offer a settlement to conclude the employee's claims – whether those claims are true or not – to ideally allow the parties to part ways and encourage the employee to go away forever. Over the last few years the practical value of settlements to the employers has been whittled away, and yesterday another large slice occurred.
During the arbitration, you delivered a firm statutory offer to settle the employee's individual claims for $20,000, and he accepted it (he was male.) A firm statutory offer under Code of Civil Procedure section 998 is a very useful tool to expediently resolve disputes by increasing the risks of costs to the plaintiff if he continues to litigate and he loses or obtains an award less than the offer. So, after the offer was accepted the case should be dismissed, right? Not so fast! Remember those civil penalties payable to the state?
Many payroll and Labor Code violations carry civil penalties that the Labor Commissioner enforces and collects for the State. In 2004, the Labor Commissioner did not have the staff or resources to pursue all the claims for civil penalties against employers, so the legislature passed the Labor Code Private Attorney General Act of 2004, or “PAGA”. Under PAGA, an “aggrieved employee” may apply to act as an authorized representative of the Labor Commissioner to pursue those statutory civil penalties, and split them 25% to employee and 75% to the State. Before 2004, only the State could sue for civil penalties from a violating employer, through the Labor Commissioner's enforcement process.
Before March 12, 2020, the appellate courts held that when an aggrieved employee settled and dismissed those personal wage and Labor Code claims, the employee was then made whole and was no longer an aggrieved employee. A settling employee was therefore stripped of the status – or standing – as an “aggrieved employee” to pursue penalties under PAGA.
But on March 12, 2020, our California Supreme Court held that settlement of individual claims does not strip an aggrieved employee of standing, as the state's authorized representative, to pursue penalties recoverable under PAGA. So, the employee may continue the litigation – in court – against the employer for PAGA penalties.
In the Supreme Court opinion of Kim v. Reins (March 12, 2020) S246911, the facts are similar to our example. The Court's analysis of distinct individual that are settled and PAGA claims that survive individual settlement is as follows:
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.” Every PAGA claim is “a dispute between an employer and the state.” 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.
The Supreme Court reiterated that an employee may also allege PAGA claims that did not occur against that complaining employee: “Employees who were subjected to at least one unlawful (Labor Code) practice have standing to serve as PAGA representatives even if they did not personally experience each and every alleged violation.”
Many more cases settle then go to trial, and it is a good thing to settle disputes to buy your peace. The $20,000 settlement for the individual claims was very good! But, to settle a PAGA claim requires notice to the State and the Court of the settlement terms, and the Court's review and approval of those terms is also required. So, it adds some complexity to trying to settle these PAGA cases.
Employee attorneys often allege PAGA penalties to try to increase the settlement value of their client's claims. While some appellate court cases have disapproved of this tactic and courts often reduced penalties, the tactic to allege PAGA penalties continues to be used by these attorneys.
A few critically important take‐aways:
- Review with your legal counsel your Dispute Resolution Plan that includes trial and class‐action waivers, and that also requires binding arbitration. (You do have a Dispute Resolution Plan, right!?)
- Review your employment and payroll practices for compliance with statutory requirements.
- CONTACT YOUR LEGAL COUNSEL IMMEDIATELY if you receive an attorney demand letter on behalf of a former disgruntled employee.
- Any settlement of an employment dispute or severance paid to a parting employee – even if a dispute is not in litigation – should be carefully drafted by legal counsel.
We can help with these and other matters.
Dieringer Law Group, APC.