Despite Prior Lawsuit Settlement, Employee Can Bring PAGA Action

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An employee who settled her individual claims against her employer for alleged Labor Code violations was not precluded from subsequently bringing a Private Attorneys General Act (PAGA) enforcement action with the same allegations, according to a California appellate panel.

Christina Howitson, a room service server for Evans Hotels, served the Labor and Workforce Development Agency (LWDA) with notice of her intention to file a PAGA action against her former employer for violations of the Labor Code.

Howitson then filed an individual and putative class action lawsuit against Evans that did not include any PAGA claims. Instead, she asserted ten causes of action based on various alleged violations of the Labor Code.

Evans responded with an offer to compromise for $1,500 plus attorney fees. Howitson accepted the offer, which provided that judgment would be entered in her favor “in her individual capacity” and would extinguish her “individual claims.” The trial court entered judgment for Howitson in her individual capacity.

Ten days later, Howitson filed a PAGA action against Evans Hotels based on the same factual predicates as her first lawsuit.

Evans filed a demurrer, arguing that claim preclusion barred the PAGA action as a result of the judgment entered in the first lawsuit.

The trial court sustained the demurrer but the appellate panel reversed, emphasizing the unique nature of a PAGA action, where an employee represents the same legal right and interest as state labor law enforcement agencies to recover on the state’s behalf.

Claim preclusion has three requirements: The second lawsuit must involve the same cause of action as the first, there must have been a final judgment on the merits in the prior litigation, and the parties in the second lawsuit must be the same as or in privity with the parties to the first lawsuit.

Neither the first nor the third requirement was met, the appellate panel determined, as the causes of action in the two lawsuits were not the same and neither were the parties.

“In the first lawsuit, the harm suffered was to Howitson individually and to a putative class of former or current employees of Evans Hotel, for purported Labor Code violations to the employees themselves in which compensatory damages were sought,” the court wrote. “However, in the second lawsuit, the harm suffered for such violations is to the state and the general public, in which civil penalties are assessed even if there is no injury to the employees themselves.”

That both lawsuits involved the same or almost the same alleged Labor Code violations did not change this conclusion.

“In the first lawsuit, it was Howitson who possessed the ‘primary right’—for her to be free from Labor Code violations as a former employee of Evans Hotels,” the panel said. “In the second lawsuit, however, the plaintiff possessing the primary right is the state, as if LWDA itself had brought the PAGA action.”

Further, claim preclusion did not apply because the parties in the two lawsuits were not the same. Howitson was the real party in interest in the first lawsuit, a position occupied by the state in the second action.

“Although the Legislature gave Howitson an ‘aggrieved employee,’ standing to act as a representative in the second lawsuit, she is not the real party in interest in that suit,” the court said. “Because Howitson steps into the enforcement ‘shoes’ of the state and her interests in the PAGA litigation are derivative of those of LWDA, we separately conclude the parties were not the same in the two lawsuits.”

The panel was also clear that no privity existed between the state and Howitson. The state had no interest in the subject matter of the first lawsuit, where Howitson was not acting as a private attorney general representing the state’s interests.

Finally, the court explained that even if the requirements for claim preclusion were established, it would still decline to apply the doctrine to bar the second lawsuit.

Applying claim preclusion under the circumstances of the case “would undermine the legislature’s intent, repeatedly expressed by the Supreme Court over about the last decade, of protecting the public from Labor Code violations that, absent PAGA, would remain unredressed,” the panel wrote.

In addition, “no issues were ‘actually litigated’ between [the parties] such that the policy of promotion judicial economy by precluding piecemeal litigation would be compromised absent the relitigation bar.”

The court also noted that PAGA expressly provides that an employee may bring suit separate from a PAGA action, and mandating that Howitson include the PAGA claims in the first lawsuit or be barred from pursuing those claims separately would run counter to the plain language of PAGA.

To read the opinion in Howitson v. Evans Hotels, click here.

Why it matters: For employers, the decision serves as a cautionary tale about the potential to face multiple lawsuits over the same conduct, as the court was clear: Not only did claim preclusion not apply to Howitson’s subsequent PAGA action, but it would not have prevented the second lawsuit based on public policy concerns.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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