By Jason Resnick, Senior Vice President and General Counsel
The Private Attorneys General Act of 2003 (PAGA) was enacted into law to address the California Labor and Workforce Development Agency’s (LWDA) inability to keep pace with its obligations to enforce the California Labor Code because of budget cuts, inadequate staffing and a rapidly expanding workforce. Traditionally contained solely within the purview of the Attorney General and Labor Commissioner, PAGA outsourced Labor Code enforcement and deputized private plaintiffs to sue their employers for alleged labor law violations. Since then, PAGA, aka the “Bounty Hunter Law,” has become a favored mechanism by plaintiffs’ attorneys to file several thousand shakedown lawsuits a year against businesses large and small.
PAGA authorizes current and former employees to sue their employers on behalf of the state for Labor Code violations allegedly committed against the employee and other aggrieved coworkers. They can then recover civil penalties created by PAGA—including penalties not otherwise obtainable directly through a private right of action. PAGA allows employees to seek a penalty—$200 per pay period per violation—for each Labor Code violation that occurred, not just for Labor Code violations that carry a specified penalty under state law. Moreover, the law creates additional penalties for labor law violations where no penalty currently is provided in state law—$100 per pay period for the first violation and $200 for additional violations.
Under PAGA, 75 percent of any penalties recovered is paid to the Labor and Workforce Development Agency, with the plaintiff retaining 25 percent. Prevailing employees are also entitled to attorneys’ fees and costs, which make these claims particularly lucrative for plaintiffs’ attorneys. Practitioners seek and obtain multimillion-dollar settlements, frequently for purely technical violations predicated on PAGA exposure. If it seems as if the deck is stacked against good, law-abiding employers, that’s because it is.
State courts interpreting PAGA have consistently stymied the business community’s efforts to defend against a statute that was seemingly designed to include a cheat code favoring plaintiffs. For example, unlike non-PAGA claims, the California Supreme Court has ruled that arbitration provisions requiring waiver of an employee’s right to bring a PAGA representative action are invalid. Arbitration provides a much faster, and typically more cost effective, forum in which to resolve disputes. But PAGA claims have been deemed by the courts to be exempted from agreements to arbitrate employee claims, and PAGA actions waivers are deemed by the courts to be void.
In other unfavorable rulings, courts have held that PAGA plaintiffs are not required to meet the class certification requirements to peruse a representative claim on behalf of other aggrieved employees; and penalties available under PAGA can be stacked with equally steep statutory penalties under the Labor Code; among others.
PAGA complaints coming to workplace near you
Under PAGA, because penalties can be stacked, even minor violations can give rise to million-dollar settlements. Most employers are forced to settle PAGA allegations well before trial rather than face the uncertainty and uncapped costs of litigation. The agricultural industry has not escaped the notice of enterprising plaintiffs’ attorneys seeking fertile hunting grounds. According to LWDA data covering the Agriculture, Forestry, Fishing and Hunting Industry Sector, analyzed by former California Department of Industrial Relations Director, Christine Baker and former Cal/OSHA Chief, Len Welsh (Baker & Welsh), out of 58 recent settlements, the average settlement amount was more than $775,000. The largest settlement ($6 million) was paid by a major farm labor contractor. Eleven other ag businesses paid $1 million dollars or more. Some employers are sued more than once. Many more agricultural businesses are currently defending PAGA claims that have not yet settled, and countless others are waiting to be sued for the first time.
Since 2004, the number of PAGA lawsuits that have been filed against the state’s employers has exploded. The state now receives about 5,000 PAGA notices annually according to the Legislative Analyst’s Office—a staggering 1,440 percent increase over the first year PAGA was in effect. According to a study authored by Baker & Welsh for the CABIA Foundation, on average employers pay $1.1 million per PAGA case, compared to $790,000 for cases decided by the LWDA. But it’s the plaintiffs’ attorneys who are the real winners—yielding settlements and fee awards of more than $372,000 per case on average. Aggrieved employees don’t fare nearly as well—recouping an average $1,300 per PAGA case. That’s approximately 4.5 times less than they make in a LWDA-decided case, where attorneys’ fees are not awarded. When cases are decided by the LWDA, successful employees get paid more money, faster. And businesses win because they can resolve disputes faster and don’t have to shell out for attorneys’ fees.
PAGA relief in sight?
Businesses defending PAGA actions have bemoaned the fundamental unfairness of the statue and the case law interpreting it for years. While some courts have been sympathetic to the pleas of employer-defendants, they say that any issues with PAGA must be addressed by the legislature, not the courts. And while countless bills have been introduced to reform PAGA in the California Legislature, these bills are routinely blocked by labor and the plaintiffs’ bar.
Consequently, California employers will have to continue fighting shakedown PAGA lawsuits unless and until the law is changed by the California voters. Fortunately, relief may come if the general business and ag communities get serious about fighting it.
In October 2021, a coalition including the California Chamber of Commerce, California New Car Dealers Association and Western Growers filed a proposed initiative measure entitled The Fair Pay and Employer Accountability Act of 2022. If approved by California voters, the proposed initiative would repeal PAGA by taking away the ability to pursue civil penalties via a representative action and replace it with a new streamlined administrative system. Moreover, the measure would create a consultation unit requiring the Labor Commissioner to provide pre-enforcement advice, allowing employers to cure alleged violations without penalties. The program would be funded by LWDA funds from PAGA settlements and existing funding though the workers’ compensation system.
To qualify for the ballot, the initiative petition must receive more than 600,000 signatures from registered voters. Substantial financial support from industry will be required to qualify the initiative petition for the ballot and to run an effective campaign required to win on election day. But it will be a small price to pay to eliminate the worst features of PAGA.