The California Private Attorneys General Act, better known as “PAGA,” authorizes individual employees to sue for Labor Code violations on behalf of all their co-workers. They can do this regardless of the number of co-workers, whether they experienced similar violations, and/or whether there is even any evidence of the violations. Since PAGA took effect in 2004, thousands of California employers have been sued for violations ranging from the failure to include an employer’s full legal name on a pay stub to more serious violations such as the failure to pay all hours worked. PAGA entitles the employee bringing the suit to collect penalties for each Labor Code violation. As PAGA lawsuits typically allege several violations, the claims add up quickly. Large employers are likely to see complaints alleging millions of dollars in potential penalties.
Employees intending to bring a PAGA action must file a notice of their intentions. As these notices have increased dramatically – from several hundred per year to more than 5,700 last year, individual employers and employer associations have increasingly questioned PAGA’s legitimacy. Their principal concerns have been three-fold: (1) PAGA’s punishing penalties are disproportionate to the alleged violations – some of which are inadvertent or inescapable given grey areas in the law; (2) the lack of meaningful notice deprives employers of the opportunity to correct a compliance problem before litigation; and (3) the state has effectively delegated its own Labor Code enforcement responsibilities to private law firms which stand to unduly profit from even the flimsiest of claims.
Unfortunately for those businesses confronting a PAGA claim, the Courts have not been sympathetic to these business concerns. And to the contrary, many judicial decisions have expanded PAGA’s impact, including a decision allowing expansive discovery in PAGA suits, and a decision to preclude arbitration of PAGA suits. Similarly, the Legislature has not been sympathetic to these business concerns. Meaningful PAGA amendments have not progressed past the committee level.
CABIA Publicizing PAGA’s Negative Impacts
Unable to affect change through traditional methods, employers are now resorting to novel approaches to confronting an arguable epidemic of PAGA litigation. A group known as California Business and Industrial Alliance (CABIA) is now actively publicizing PAGA’s negative impact on small businesses on social media. It has recently organized protest rallies at the business locations of the law firms filing the highest number of PAGA lawsuits, with the aim of attracting attention on the particularly abusive aspects of PAGA and its impact on small businesses. Numerous media outlets have reported on the rallies and CABIA’s efforts.
Late last year, CABIA expanded its efforts by filing a declaratory relief action in Orange County Superior Court alleging that PAGA, as currently applied, violates both the California and U.S. Constitutions. It claims that PAGA – in practice – violates equal protection mandates because certain construction employers are exempted, while other businesses enjoy no such relief, that it violates constitutional prohibitions on excessive fines, and that it violates due process protections. There is no binding precedent on those questions. The state has yet to respond to that lawsuit.
It remains to be seen whether these efforts will bear fruit. The losing party on the trial level will most likely pursue an appeal. Success on the appellate level will then probably lead to a request for Supreme Court review. The entire process could take several years.
In the meantime, individual employers are attempting to defeat PAGA exposure by direct settlement with the employee filing notice of a PAGA claim or the employees who purportedly suffered the applicable Labor Code violation. (Some such efforts are accompanied by statutory offers to compromise so as to limit potential attorney fee awards in the case the claim is tried.) While courts have not uniformly found that such direct settlements block the prosecution of a PAGA lawsuit, the unsettled status of litigation in the wake of these direct settlements can help facilitate reasonable settlement discussions. In a case that is now under Supreme Court review, the plaintiff settled her individual employment-based claims for a payment of $20,000, leading to the trial court’s decision that because the plaintiff was no longer “aggrieved,” she did not have standing to prosecute wage claims or represent other employees in connection with such claims. The Supreme Court’s decision to review the case means that for now, the case cannot be cited as authority to support a lack of standing argument. However, the argument itself remains persuasive.
As PAGA filings are likely to increase this year, and as tactics, both on the defense and plaintiff side, continue to evolve, California employers will be forced to monitor PAGA exposure and their options in the years to come. Those options undoubtedly will include unconventional, uncertain and untested approaches to combating PAGA claims.