New Opinion Would Greatly Expand PAGA Litigation - But Will It Stand?

CDF Labor Law LLP

Last week the California Court of Appeal, Fourth Appellate District, dropped a bombshell on employers by opining that an employee has standing to pursue PAGA penalties even if she only claims to have suffered a Labor Code violation outside the applicable one-year statute of limitations period.  The holding, should it stand, would likely increase the volume of PAGA lawsuits and make them even more difficult to defend.  It would also undermine PAGA long-standing jurisprudence.

The Johnson decision was certified for publication and thus binding on all California trial courts absent clarification, rehearing, review and/or depublication.  Employers should monitor developments in this case and consider requesting depublication of the decision, as discussed below.

The Decision: Johnson v. Maxim Healthcare Services, Inc.

Maxim Healthcare Services, Inc. (“Maxim”) required employees, including plaintiff Gina Johnson, to sign a Non-Disclosure, Non-Solicitation, and Non-Competition Agreement (“Agreement”). Such agreements are generally invalid under California law.  (Cal. Bus. & Prof. Code § 16600 (“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void,” unless it falls within an exception set forth in sections 16601, 16602, or 16602.5).

Johnson signed the Agreement on September 7, 2016.  Over three years later, while still employed by Maxim, Johnson filed a representative lawsuit under PAGA with no individual claim.  Johnson alleged that Maxim violated Labor Code section 432.5 by requiring employees to sign the Agreement, and claimed it was a “continuing violation” until Maxim rescinded the Agreement.  (Section 432.5 states, “No employer … shall require any employee … to agree, in writing, to any term or condition which is known by such employer … to be prohibited by law”).

The trial court sustained Maxim’s demurrer, dismissing the PAGA action because an individual claim for a violation of section 432.5 has a three-year limitations period, and she filed suit outside of that period.  As a result of having no right to bring an individual claim, the trial court found Johnson could not pursue a PAGA claim in a representative capacity.

The Court of Appeal reversed the judgment holding that, under California Supreme Court’s 2020 ruling in Kim v. Reins, “an employee whose individual claim is time-barred[] may still pursue a representative claim under PAGA.”  In Kim, the high court held that an employee’s settlement of individual claims does not defeat standing to maintain a PAGA claim.  The Court of Appeal in Johnson found that the “rule from Kim is an ‘aggrieved employee has standing to pursue a PAGA claim, irrespective of whether that employee maintains a separate Labor Code Claim.” 

Thus, the Court of Appeal found it irrelevant that Johnson’s individual claim was time-barred and allowed her to maintain her PAGA claim.  Notably, the appellate court did not rely on or reference the fact that Johnson was a current employee or that she alleged a “continuing” violation based on the Agreement.  Astonishingly, the fact that Johnson claimed she experienced a violation years prior was enough for the appellate court to find she had standing to maintain a PAGA claim. 

Unaddressed Issues Concerning a Timely Representative PAGA Claim

The Court of Appeal’s decision in Johnson followed the high court’s precedent in Kim, finding Johnson’s inability to bring an individual claim did not undermine her standing to maintain a PAGA claim.  The court’s analysis should not have stopped there, but it did.  As a result, the Johnson decision ignores two fundamental aspects of PAGA litigation and creates a great deal of uncertainty about an employee’s standing to bring a PAGA claim.

First, the PAGA statute requires that aggrieved employees bring an action to recover civil penalties on behalf of themselves and other employees.  Civil penalties arise per employee, for each pay period in which a Labor Code violation committed against him or her.  The California Supreme Court has explained that PAGA plaintiffs “bring a civil action personally and on behalf of other current or former employees to recover civil penalties.”  (Arias v. Superior Ct.; Lab. Code § 2699(a).)  The “aggrieved employee … is a member of the group being represented.”  (Arias.)  Accordingly, the PAGA plaintiff’s action must, at the least, seek a civil penalty for a violation he or she experienced and a civil penalty for a violation experienced by another employee.

Second, claims for civil penalties imposed by PAGA are governed by a one-year limitations period. Aggrieved employees can recover civil penalties for only violations the employer committed within the limitations period.  They may not recover civil penalties for violations occurring before the limitations period.  Taken together, the PAGA plaintiff and a represented employee must have experienced a violation within the one-year limitations period.

Although Maxim presented these arguments in its answering brief, the Court of Appeal ignored them in its decision.  As a result, Johnson was allowed to maintain a purely representative PAGA claim on behalf of others, contravening long-standing PAGA jurisprudence.

Will Johnson Stand and What to Do About It? 

The new branch of PAGA jurisprudence sprouted by Johnson may not—and certainly should not—survive.  California courts uniformly agree that the PAGA does not allow employees to bring claims solely on behalf of themselves, and not others.  The inverse must also be true; that PAGA does not allow purely representative claims brought solely on behalf of others.

Absent clarification, reconsideration, or reversal, the Johnson decision would negate the basic requirement that a PAGA plaintiff must be a member of the represented group.  It may be that the holding in Johnson should be constrained to its facts- specifically, the fact that Johnson was a current employee asserting a continuing violation theory.  But the Court did not expressly rely on those factors in its decision, which is a cause for great concern and confusion on the state of standing under PAGA.

It is yet to be seen whether Maxim will seek a rehearing or review.  Employers should monitor developments in the case and consider requesting that the Supreme Court depublish the Johnson decision under California Rules of Court, Rule 8.1125.  Additionally, employers must continue to evaluate Labor Code compliance and monitor legal developments to prevent and be aware of potential violations.

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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