?Takeaway: California employers could face additional liability since a court has decided that employees can file PAGA claims after settling individual claims for the same violations.
?An employee who settled individual claims against her employer for alleged labor code violations was not subsequently barred from bringing a Private Attorneys General Act (PAGA) enforcement action against the employer for the same labor code violations, even though—prior to settlement—the employee could have added the PAGA claims to the existing action, a California appeals court ruled.
Because the two actions involve different claims for different harms and because the state was not a party to the first action, the doctrine known as “claim preclusion” did not mandate dismissal of the PAGA claims, the court said.
Claim preclusion is based on the reasoning that a party should not be allowed to litigate the same issue a second time, the court said. Further, if the matter the party is seeking to litigate could have been raised in the first action, the party may not raise it in a second lawsuit even if it was not actually litigated in the first action.
Three requirements must be met for claim preclusion to apply, the court explained. First, the second lawsuit must involve the same cause of action as the first lawsuit. Second, there must have been a final judgment on the merits in the prior litigation. Third, the parties in the second lawsuit must be the same as the parties to the first lawsuit.
Purpose of PAGA
The California legislature enacted PAGA in 2004 for the purpose of increasing the limited capability of the state to remedy violations of the labor code. PAGA authorizes an aggrieved employee to file a lawsuit on behalf of the state, seeking civil penalties for violations of the labor code, allocating 75 percent of the penalties recovered to the California Labor and Workforce Development Agency (LWDA), with the remaining 25 percent going to all employees affected by the violation. Before filing suit, PAGA requires the employee to submit a notice of the alleged violations to LWDA and the employer. LWDA then has 60 days to respond to the notice, and if no response is forthcoming after 65 days, the employee may commence a PAGA civil action.
The employee worked for a hotel chain as a room service server for about one month, between April and May 2019. On March 26, 2020, she served LWDA with notice of her intention to file a PAGA action against the chain for violations of the labor code. The hotel chain responded to LWDA on April 27, 2020. The required 65-day statutory waiting period ended on June 1, 2020, without any response by LWDA.
On May 26, 2020, the employee filed an individual lawsuit against the hotel chain, which did not include any PAGA claims. Instead, she asserted 10 causes of action, based on numerous alleged violations of the labor code and unfair competition laws.
On June 15, 2020, the hotel chain served the employee with an offer to compromise for $1,500 plus attorney fees. The employee accepted the offer, and on Sept. 20, 2020, the trial court entered judgment for the employee.
About 10 days after accepting the offer, the employee filed a PAGA action against the hotel chain, based on the same facts as the first lawsuit. The hotel chain sought to have the action dismissed before trial, asserting that the doctrine of claim preclusion barred the second lawsuit. The hotel chain argued that the employee chose not to pursue the PAGA claims in her first lawsuit and that the two lawsuits involve the same, or nearly the same, alleged violations of the labor code.
The employee argued that claim preclusion did not apply because neither the harms nor the parties are the same in the two lawsuits. The trial court dismissed the second lawsuit, and the employee appealed.
Not Same Causes of Action or Same Parties
The appeals court first concluded that the causes of action are not the same. The harm suffered by the employee in the first lawsuit is not the same harm as that suffered by the state in the second lawsuit, the appeals court said. Damages awarded in individual lawsuits are intended to compensate for injuries incurred—to make the individual whole. On the other hand, the civil penalties awarded under PAGA are intended to punish the wrongdoer and to deter future misconduct. An act may be wrongful and subject to civil penalties under PAGA even if it does not result in injury, the court said.
Furthermore, the court said, claim preclusion does not apply because the parties in the two lawsuits are not the same. In the first lawsuit, the employee sought damages against the hotel chain for purported labor code violations. However, the court said, in the second lawsuit, the state is the real party in interest.
A PAGA action is always a dispute between an employer and the state, the court explained. Although the employee is a party to the action, she is representing the interests of the state, not her own interests. The state had no interest in the subject matter of the first lawsuit. Therefore, the court concluded that the parties are not the same in the two lawsuits.
Howitson v. Evans Hotels LLC, Calif. Ct. App., No. D078894 (July 21, 2022).
Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.