Authored by Michael J. DeSantis
In a recent ruling by the California Court of Appeal, the Court further complicated disputes between employees and employers when it ruled that an employee who settles individual claims against their employer for alleged Labor Code violations is not subsequently barred by claim preclusion from bringing a Private Attorney General Act (“PAGA”) enforcement action against the employer for the same, alleged Labor Code violations when, prior to the settlement, the employee could have added the PAGA claims to the existing action. (Howitson v. Evans Hotels, LLC (4th Dist., July 21, 2022) 81 Cal.App.5th 475.) The Court drew a distinction between the “real party in interest” in a PAGA action and the “real party in interest” in an action for damages, which potentially presents employees with the opportunity to prosecute two actions based on the same alleged Labor Code violations.
In an action for damages based on an employee’s individual claims for alleged violations of the Labor Code, the employee is the “real party in interest,” however, in an PAGA action, the “real party in interest” is always the government entity on whose behalf the action was filed. As the Court explained, in a PAGA action, “the employee plaintiff represents the same legal right and interest as the state labor law enforcement agencies—namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor and Workforce Development Agency [LWDA].” (Howitson, supra, 81 Cal.App.5th at 485.) Consequently, the Court concluded that the harm alleged by an individual employee is not the same as the harm suffered by the state.
“‘Damages are intended to be compensatory, to make one whole. … Accordingly, there must be an injury to compensate. On the other hand, “Civil penalties, like punitive damages, 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.’” (Id. at 487 (citing Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 86).)
In analyzing the facts of Howitson, the Court determined that in the First Lawsuit, the harm suffered was to the plaintiff individually (and to a putative class of former or current employees) for purported Labor Code violations to the employees themselves, for which compensatory damages were sought. “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.” (Howitson, supra, 81 Cal.App.5th at 487.) “In the Second Lawsuit, … the plaintiff possessing the primary right is the state, as if the LWDA itself had brought the PAGA action. … Because the primary rights of the plaintiffs in the First and Second Lawsuits are not the same, we independently conclude claim preclusion does not apply to bar the Second Lawsuit.” (Id., at 488.) “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.” (Id.)
In concluding that PAGA claims are not barred by claim preclusion in these situations, the Court found that the state “had no interest in the subject matter of the First Lawsuit” and “did not have an interest so similar to Howitson’s that she was acting as the state’s ‘virtual representative’ in the first action.” (Id., at 491.) In reaching that conclusion, the Court declined to follow Willacres v. ABM Industries Inc. (2010) 189 Cal.App.4th 562, wherein that Court found that a subsequent PAGA action was barred by claim preclusion after the plaintiff settled a prior class-action lawsuit against the same employer, which included an allocation of up to $730,000 for civil penalties. The Howitson Court questioned “whether Willacres remains good law in light of the Supreme Court’s repeated recognition that the real party in interest in a PAGA suit is the state, not the aggrieved employee.” (Howitson, supra, 81 Cal.App.5th at 491.)
The Court also concluded that applying claim preclusion in these situations to bar a subsequent PAGA action “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.” (Id., at 492.)
The Court’s rulings in Howitson underscore the importance of consulting knowledgeable employment attorneys when employee disputes arise. Lobb & Plewe`s team of employment attorneys can assist your business in resolving an employee’s individual claims while simultaneously eliminating the risk of the employee filing a subsequent PAGA enforcement action. Lobb & Plewe`s employment attorneys can also work with you and your business—before disputes arise—to develop and implement compliant policies and procedures to avoid employee claims proactively.
Please contact our office at 866.680.0938 and request to speak with Elaine Rodriguez to schedule an appointment with one of our employment attorneys to discuss your unique situation and how we can help.
Meet the Author:
Michael DeSantis is one of our top associates on the litigation team. He represents businesses and entrepreneurs in business disputes, employment disputes and defends clients against personal injury and other general liability claims.