EMPLOYEE WHO SETTLES INDIVIDUAL LABOR CODE CLAIMS NOT BARRED FROM FILING SUBSEQUENT PAGA ACTION
On July 21, 2022, in Howitson v. Evans Hotels, LLC, __ Cal.Rptr.3d __, 2022 WL 2866213 (2022), the Court of Appeal determined that an employee who settles individual claims against an employer for alleged Labor Code violations is not subsequently barred from bringing a Private Attorney Generals Act (“PAGA”) action against the same employer for the same Labor Code violations.
1. Plaintiff’s Individual And Proposed Class Action LawsuitIn May 2020, Plaintiff Christina Howitson filed a lawsuit against her former employer, asserting individual and proposed class action claims based on numerous alleged Labor Code violations. Around the same time, Howitson served the Labor Workforce Development Agency (“LWDA”) with notice of her intention to file a PAGA action against that former employer. However, Howitson did not amend her complaint in her proposed class action to assert any PAGA claim. Shortly after the proposed class action/individual lawsuit was filed, Howitson accepted a settlement offer from the defendant in the form of a statutory “offer to compromise,” pursuant to Code of Civil Procedure Section 998. This offer provided, among other things, that judgment would be entered in favor of Howitson “in her individual capacity.” The trial court thereafter entered judgment in Howitson’s favor “in her individual capacity” and her lawsuit was dismissed.
2. Plaintiff’s Subsequent PAGA LawsuitApproximately 10 days after she accepted the settlement offer, Howitson filed a PAGA action against the same defendant, based on the same facts as her first lawsuit. The defendant filed a demurrer, arguing that this second lawsuit was barred by the doctrine of claim preclusion because the two lawsuits involved the same, or nearly the same, alleged violations of the Labor Code. The trial court granted the defendant’s demurrer and dismissed the PAGA lawsuit. The court found that the PAGA claims were barred by claim preclusion because: (1) both lawsuits involved the same parties; (2) both lawsuits involved the same Labor Code violations; and (3) Howitson could have brought the PAGA claims in her first lawsuit.
3. The Appellate Court’s DecisionHowitson appealed the trial court’s ruling to the Court of Appeal. In analyzing whether Howitson was precluded from asserting her subsequent PAGA lawsuit, the Court of Appeal explained the doctrine of claim preclusion. The doctrine applies to matters which were raised or could have been raised in a prior action. For claim preclusion to apply: (1) the second lawsuit must involve the same “cause of action” as the first lawsuit; (2) there must be a final judgment on the merits in the first lawsuit; and (3) the parties in both lawsuits must be the same, or in privity with one another. The phrase “cause of action” means that the lawsuits seek to vindicate the same “primary right,” which is concerned with the alleged harm suffered, not the legal theory asserted.
Under this analysis, the court first determined that the “harm suffered” in each lawsuit was not the same. The first lawsuit asserted harms Howitson suffered individually and that the proposed class suffered, in which compensatory damages were sought for violations to the employees. By contrast, in the PAGA lawsuit, the harm suffered was to the state and general public, in which civil penalties would be assessed, even if there was no injury to the employees themselves. The court further explained that, even though both lawsuits involved the same alleged Labor Code violations, this fact was not dispositive because the plaintiff possessed the “primary rights” in the first lawsuit, whereas the state possessed the “primary rights” in the second lawsuit.
The court then determined, under similar reasoning, that the parties in both lawsuits were not the same. In the first lawsuit, Howitson was the real party in interest, whereas in the second lawsuit, the state was the real party in interest. Howitson was merely stepping into the shoes of the state in her second lawsuit.
Lastly, the court determined that no privity existed between the state and Howitson. The defendant argued that the two were in privity because Howitson became an agent of the state after she submitted her PAGA notice to the LWDA and the LWDA failed to respond. The court disagreed, finding that the state had no interest in the first lawsuit since it involved individual and proposed class action claims only and Howitson settled the lawsuit for her own individual benefit.
4. TakeawaysThis case provides employers with something to consider when determining whether and how to settle Labor Code claims with an employee in his or her individual capacity. With such an individual settlement (when no PAGA lawsuit has been filed), an employer runs the real risk that the employee will later be permitted to bring a PAGA lawsuit for the same alleged Labor Code violations. To read more articles like this one, subscribe to the ALERT Newsletter today!
About The Author
Rachel Patta Howard is an associate in Sheppard Mullin’s Labor and Employment Practice Group in the firm’s Century City office. Ms. Howard represents employers in a variety of industries including financial services, banking, retail, healthcare, manufacturing, and entertainment. She has successfully litigated and favorably resolved cases involving allegations of discrimination, retaliation, harassment, failure to accommodate, wrongful termination, trade secret misappropriation, and defamation, as well as wage and hour cases, including representative and class actions. Additionally, Rachel advises and counsels clients on day-to-day employment issues including internal investigations, discipline and terminations, leaves of absence, the interactive process, reasonable accommodations, personnel policies, and other wage and hour compliance issues.
She has written a number of articles for the Sheppard Mullin Labor and Employment Blog and is a contributing author of the ALERT Newsletter.
Ms. Howard received her law degree, as well as her undergraduate degree, from the University of California, Los Angeles.