More than 5,000 California employers are sued each year for civil penalties under the Labor Code Private Attorneys General Act (“PAGA”). This year promises to be no exception. Already, the state has received notice of hundreds of intended PAGA actions. Every business in the state with at least one employee is at risk of such a claim.
Under PAGA, any former or current employee can sue his or her employer on behalf of the state to collect civil penalties for Labor Code violations. Any such employee – regardless of his or her length of employment – is entitled to seek penalties based upon not only his or her own work, but based upon the work and pay received by each of his or her co-workers. The penalties range from 50 to several hundred dollars per week, per employee. An employee has no obligation to prove any actual Labor Code violations before commencing a PAGA action against his or her employer. Nonetheless, once the action commences, the employee’s attorneys typically demand to inspect all the employer’s pay data, including paystubs and timecards. In that fashion, they can embroil an employer in litigation for months or years – even where the employer complies in good faith with California’s highly technical and complex labor laws.
Minimize PAGA Exposure
While California’s Legislature has shown no interest in reforming PAGA’s draconian features, employers in 2023 can take advantage of recent judicial and political developments to limit PAGA’s impact. Employers should be alert to any such opportunities given the anticipated growth in PAGA filings.
The first such development is a voter initiative. Last July, the Secretary of State reported that a ballot initiative to repeal PAGA had qualified for the 2024 ballot. The initiative proposes repealing PAGA altogether and replacing it with a new law that would:
- require the Division of Labor Standards Enforcement (DLSE) to be a party to all labor complaints;
- double statutory and civil penalties for willful violators;
- require that 100% of monetary penalties be awarded to harmed employees; and
- provide resources to employers to ensure labor compliance.
Under the initiative, individual employees suffering Labor Code violations would receive greater penalties than allowed under PAGA, but the middleman, i.e., the attorneys, would essentially be carved out of the deal. As a result, if the initiative were successful, fewer claims would be filed, and as to the filed claims, they would be easier to assess and resolve quickly and efficiently. PAGA penalties in pending cases would cease to accrue once the initiative takes effect.
While employers should avoid pressuring employees to vote for the initiative, they can join the numerous civil and business associations supporting the measure or otherwise lend their support. More information about the initiative can be found here. The initiative will not take effect retroactively, but inevitably the more likely the initiative is to win, the more likely that PAGA attorneys will realistically evaluate their current claims, drop frivolous demands, and reduce their PAGA filings in the interim.
Second, while California courts have historically held that PAGA claims are not subject to private arbitration agreements and must be litigated in court, the U.S. Supreme Court recently disagreed. As has been widely publicized, the U.S. Supreme Court ruled last June in Viking River Cruises Inc. v. Moriana that arbitration agreements may be drafted to include individual PAGA claims. It remains to be seen whether this decision will enable employers to limit PAGA exposure to an individual claim in arbitration or whether it will merely bifurcate PAGA actions into individual claims in arbitration and representative claims in court. Nonetheless, because there is ongoing uncertainty about whether an employee who has agreed to arbitrate on an individual basis can violate that promise and represent the state in recovering the state’s penalties, arbitration agreements have become increasingly important in managing the risks of PAGA.
Court-Monitored Settlement Conferences
Third, certain trial courts – inundated with PAGA claims– have begun taking a closer look at PAGA claims and in the process are strongly encouraging PAGA plaintiffs to prosecute their cases in the civil and fair manner expected of California’s actual deputy attorneys general. And they are doing so out of necessity; court dockets once swamped with personal injury claims are now dominated by PAGA claims. One of the steps the courts have taken is to require PAGA plaintiffs to attempt reasonably-priced court-monitored settlement conferences instead of holding out for $25,000 per day private mediators. The Courts have also been forcing PAGA plaintiffs to accurately assess their ability to prove the thousands (tens of thousands) violations alleged in their complaints. Plaintiffs’ attorneys who are balancing hundreds of PAGA cases at any one time will sometimes reduce the scope of their claims in response.
Trial court judges truly serve as the gatekeepers on PAGA settlements as a PAGA claim cannot be settled without court approval. Trial courts are increasingly receptive to arguments that PAGA settlements can and should take into account the uncertainty of PAGA’s reach, and the purported purpose of PAGA to enhance compliance rather than line law firm pockets. Therefore, it makes sense to involve trial judges early on in managing PAGA actions and facilitating settlement discussions.
When PAGA was enacted in 2004, it was purportedly designed to enhance (not replace) the state’s Labor Code compliance efforts. No one predicted at the time that it would spawn a PAGA industrial complex – from recruiters finding employees to file lawsuits, to the thousands of law firms bankrolled by the steep contingency fees they collect when a PAGA action is resolved, to the private mediators paid up to $25,000 and more per day to negotiate PAGA settlements. Nonetheless, 19 years later, the PAGA industrial complex is thriving. As such, there is more and more reason to become proactive in 2023 to minimize PAGA exposure and to take advantage of these developments.