Under the California Labor Code’s Private Attorneys General Act of 2004 (PAGA), an aggrieved employee — acting solely on their own behalf and/or on behalf of other current and former employees — may bring a civil action to enforce Labor Code provisions if the government has not enforced them.
A new ruling from California Fourth Appellate District expands the reach of representative actions under the PAGA and limits employer defenses based upon seemingly stale claims (Johnson v. Maxim Healthcare Services, Cal. Ct. App. 4th Dist., No. D077599 (July 21, 2021)). More specifically, an employee with an outdated individual claim may still file a representative claim — on behalf of other purportedly aggrieved employees — under the PAGA.
A Time-Barred PAGA Claim?
In Johnson v. Maxim Healthcare Services, Inc., Gina Johnson sued defendant, Maxim Healthcare, for civil penalties under the PAGA, claiming she could do so because Maxim Healthcare insisted that she sign a purportedly unenforceable noncompete agreement when she started work at the company.
Johnson alleged that the noncompete agreement violated California Labor Code section 432.5, which provides that employers may not require an employee to agree in writing to any terms the employer knows are prohibited by law. Maxim asked the court to dismiss the action on the grounds that Johnson failed to file it within the PAGA limitations period — one year from the alleged violation. The lower court agreed, finding that the PAGA claim was time-barred.
Reversal Per Kim v. Reins
The appellate court, however, reversed the ruling, relying on the 2020 California Supreme Court decision in Kim v. Reins International California, Inc., 9 Cal.5th 73 (2020).
The Kim v. Reins court held that “aggrieved employees” who settle and dismiss their individual PAGA claims may still maintain representative actions. So long as the employee has suffered an injury covered by the PAGA statute, they are granted standing to pursue a representative PAGA claim on behalf of all other affected employees. The Johnson court compared Johnson to the prior Kim holding:
“The fact that Johnson’s individual claim may be time-barred does not nullify the alleged Labor Code violations nor strip Johnson of her standing to pursue PAGA remedies. In this sense, we find the fact that Johnson’s claim is time-barred places her in a similar situation as a plaintiff who settles her individual claims or dismisses her individual claims to pursue a stand-alone PAGA claim.”
The court rejected the employer’s attempt to distinguish Kim as applying only when a plaintiff settles the underlying Labor Code claims.
The court’s message is a mixed one.
On one hand, it stands for the proposition that an aggrieved employee who has suffered a Labor Code violation, presumably at any time, has prima facie standing to pursue a PAGA claim. The fact that Johnson herself was time-barred from pursuing an individual claim for the alleged Labor Code violation didn’t prevent her from commencing a representative action on behalf of all affected employees.
On the other hand, the court seemed to limit the extent of its holding to the pleading stage. It noted that because the plaintiff alleged in her complaint that she was an “aggrieved” employee with standing under the PAGA, the defendant couldn’t block the PAGA claims without further review of the evidence. In other words, Maxim Healthcare might have a later opportunity to argue the claim was stale, but only after depositions were taken and documents were exchanged. Unfortunately, the court didn’t illustrate precisely how the timeliness defense could be raised at a later stage in the case.
Questions for Appeal
The stated legislative intent behind the PAGA is “to provide that civil penalties for violations of the Labor Code may also be assessed and collected by aggrieved employees acting as private attorneys general.” As the Johnson court conceded, “not every private citizen in California can serve as the state representative” in PAGA actions. The statute defines an aggrieved employee as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.”
But the issue remains whether an employee, whose individual claim is time-barred, may still pursue a representative claim under the PAGA. Thus, the holding in Johnson doesn’t do away with the requirement that there be an underlying violation. The PAGA representative must still be able to establish that they suffered one or more of the alleged Labor Code violations to maintain standing, even if the violation is no longer actionable on an individual basis.
What’s unclear is whether a plaintiff such as Johnson — despite having standing to bring a PAGA action — would have experienced any violations during the one-year PAGA statute of limitations period.
By limiting an employer’s ability to defend PAGA claims based upon statute of limitations grounds, the Johnson court has significantly expanded the possibility of increased PAGA filings. While the Johnson court’s message remains mixed, it provides sufficient authority to encourage any former employee to seek PAGA penalties — regardless of when and how long they were employed.
Under this analysis, it’s conceivable that an employee whose claims expired 10 years earlier could still bring a PAGA claim because “at one time,” the employee was an aggrieved employee under the PAGA. While an appeal may help resolve the ambiguities in the case, employers are currently left with the prospect of increased PAGA filings and increased costs.
Takeaways for Employers
Employers should review their standardized employment agreements, employee applications and onboarding packages to eliminate any unlawful noncompete language or other provisions contrary to California law. Just because a form is lawful in another state doesn’t mean it’s permissible in California.
Another immediate concern presented for employers by the Johnson and Kim rulings is the potential for employees with expanded PAGA standing to pursue penalties for meal and rest break violations even when the required premium under Labor Code section 226.7 is paid. Employers are advised to continue monitoring meal and rest break compliance in the workplace to limit exposure to these prolific PAGA claims.