In light of the 2024 Private Attorney General Act (“PAGA”) Reforms, which now require an employee to have personally suffered a labor law violation to bring a PAGA claim, the California Court of Appeal recently addressed a critical question: if an arbitrator finds that a worker suffered no such injury, does that ruling mean that the employee lacks standing to sue for state penalties?  In Prime Healthcare Management, Inc. v. Superior Court, the court held that it does not, reaffirming PAGA’s structure as a representative enforcement mechanism in which the state, acting through an “aggrieved employee,” is the real party in interest rather than a participant in the prior individual arbitration.

The case began when Eleni Gavriiloglou sued her former employer, Prime Healthcare, alleging various wage and hour violations. Her lawsuit was split into two tracks. Her individual claims were sent to private arbitration, while her PAGA claims (both individual and representative) were stayed in court. After a full hearing, a private arbitrator ruled in favor of the employer, finding that no Labor Code violations had occurred. Armed with this victory, Prime Healthcare asked the court to dismiss the remaining PAGA case, arguing that because an arbitrator found no violations, Gavriiloglou was no longer an "aggrieved employee" and therefore had no right to represent the state.

However, the Court of Appeal rejected this "shortcut" for employers. The court explained that when an employee brings a PAGA claim, they are acting as a designated agent for California’s Labor and Workforce Development Agency. Because the state was not a party to the private arbitration agreement between the worker and the company, it cannot be bound by the arbitrator’s decision. The court emphasized that the legal “capacity” of the person matters; losing a case as an individual seeking personal money does not legally prevent that same person from acting as a representative of the government in a separate law enforcement capacity.

Furthermore, the court clarified that determining whether someone has the standing to bring a PAGA claim is a “gateway” issue that belongs to a judge, not a private arbitrator. Even if an arbitrator decides that an employee suffered no specific financial harm, a judge must still independently evaluate the PAGA claim because it belongs to the state. This means that an employer cannot simply “bootstrap” a win in arbitration to automatically defeat a PAGA case.

This decision is significant in light of the 2024 PAGA reforms. While those changes underscore that an employee must have personally experienced the Labor Code violations at issue to qualify as an “aggrieved employee,” the Prime Healthcare opinion confirms that the determination of whether that standard is met for purposes of PAGA penalties is for the court to make, and cannot be short‑circuited merely by pointing to a determination in a prior private arbitration to which the state was not a party. For those employers involved in wage and hour disputes with their employees, be aware that winning an individual arbitration may resolve an employee’s personal claims, but it does not, without more, resolve the state’s separate enforcement interests under PAGA.

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