Seyfarth Synopsis: In recognition of PAGA’s failure to protect California’s workers for the past 18 years, and the tremendous toll it has taken on California businesses, 2022 is the year to pass a proposed ballot initiative to amend this troublesome statute. The California Fair Pay and Accountability Act on the ballot this year aims to replace PAGA with alternative Labor Code enforcement mechanisms by the Labor Commissioner.

The Private Attorneys General Act of 2004 (“PAGA”) is an 18-year old problem that California just cannot seem to kick. Will 2022 finally be the year that California gets its act together and rids itself of PAGA once and for all? Voters may have the opportunity to decide at the ballot box in November.

Why is PAGA a Problem?

PAGA was enacted in 2004 to help the Labor Commissioner’s office enforce California’s labor laws. It does this by “deputizing” private attorneys to file lawsuits on behalf of employees who, in concept, stand in the shoes of the state. Penalties for a multitude of alleged violations can stack up quickly and are ongoing, coming in at $100 to $200 per pay period per employee, even for administrative errors or pay mistakes that may be off by a few cents.

There have been two primary issues with PAGA for California employers:

First, PAGA has eviscerated many of the safeguards the legal system has put into place to prevent frivolous lawsuits. Because employees who decide to sue and their private attorney are “standing in for the state,” their power to sue a business for anything and everything is essentially unchecked. For example:

  • Employees can sue employers based on Labor Code violations they never experienced (or perhaps did not even know about until getting into their discovery relating to an entirely different claim).
  • Employees filing suit can bypass intentionality or willfulness requirements included in the Labor Code as established by the Legislature.
  • Employees can sue in a venue in which they’ve never set foot. So, for instance, an employee can forum shop to sue in the most employee-friendly jurisdiction in the state.
  • Employees can settle their individual claims for money and then still sue as a representative under PAGA for the exact same claims on behalf of a larger group of employees who have never made a complaint.

Second, the law has been manipulated by plaintiffs’ attorneys at the expense of workers, employers, and the state. Because a PAGA claim is so easy to bring, attorneys regularly add the claim to a lawsuit or demand letter. By 2016, well in excess of 4,000 of these cases were filed against California businesses in one year alone—an increase of over 1000% in filings from the first year of the law’s enactment!

The threatened sky-high penalties in these actions are leveraged against employers to extort high settlements, because the cases are often too expensive to litigate. Once these plaintiffs’ attorneys have secured a settlement on a PAGA threat, the settlement agreements are then written to allocate very little monetary recovery to the PAGA claims, so that the state and workers who are supposed to benefit get nominal sums while the attorneys walk away with one-third or more of the total settlement amount.

A review of recent data shows us that it is indeed plaintiffs’ attorneys who are benefitting from PAGA. Workers who pursue claims through PAGA court cases recover an average of $1,200. Meanwhile, PAGA attorneys usually demand a minimum of 33% of the workers’ total group recovery, or $372,000 on average, no matter how much legal work was actually performed. Workers suing through PAGA also wait over 500 days on average to receive their small amount of recovery.

The Solution: The California Fair Pay and Employer Accountability Act

Despite acknowledgements by both legislators and governors that PAGA is a problem, next to nothing has been done to reform it. In light of PAGA’s failure to protect workers or employers, CalChamber, the New Car Dealers Association, the Western Growers Association, and the California Restaurant Association are sponsoring a ballot initiative titled “The California Fair Pay and Employer Accountability Act.”

The initiative:

  • Replaces PAGA, giving the Labor Commissioner the right to levy penalties if the law does not otherwise provide for them, including increasing penalties for willful violations.
  • Provides that 100% of penalties will go to the workers (instead of the 25% of the penalties that workers currently receive under PAGA lawsuits).
  • Creates a Consultation and Publication Unit that employers can use to obtain binding guidance about how to apply the Labor Code.

CalChamber’s annual voter poll demonstrates that voters support this reform. When asked to choose between the two major arguments on each side of the proposed initiative, voters agreed with the proponents by a margin of 79% to 21%.

The California Fair Pay and Employer Accountability Act is an opportunity to reform labor law enforcement to prevent frivolous litigation while ensuring that workers receive the wages they are owed in a timely manner, plus any penalties. The Act would  also benefit both workers and employers by allowing employers to consult the Labor Commissioner when there is an ambiguity in the law, to help make sure they are in compliance. Eliminating PAGA is a resolution we should all make for 2022.

Workplace Solutions

Learn how you can help at: Help CA Workers and Businesses by Replacing PAGA ( California businesses and workers can make a change for the better by getting rid of PAGA once and for all in 2022!

Edited by Coby Turner and Elizabeth Levy