PAGA doesn’t stand for the “Pirates Attorney Generals Act” but most California employers will probably tell you it should.
Actually, the rationale behind PAGA could trace back to days when the government authorized private armed ships called “privateers” to roam the high seas. The privateers earned enormous profits seizing enemy cargo and holding ships and passengers for ransom, while the government benefited without having to incur the expense of directly outfitting naval vessels. Of course, if you were the merchant ship that was attacked, you would probably wouldn’t see any difference between a privateer and a pirate.
Fast-forward to today and we have a similar system under Labor Code Sections 2698-2699.5, known as the Private Attorneys General Act, or PAGA. This is the modern-day law authorizing private citizens to hunt down and penalize employers.
1. What exactly is PAGA?
Employees have always had the authority to file a lawsuit against their employer for violations of the labor code. PAGA extends that right, giving employees governmental authority to assess penalties against businesses through monetary fines for every labor code violation and giving “aggrieved employees” the power to enforce those fines on their own behalf, as well as on behalf of their co-workers.
For every $100 fine that an aggrieved employee enforces on behalf of the government, the employee keeps $25 and the ever-generous government takes the rest. In practice, this sharing of penalties hasn’t worked quite as the law makers expected. This creates significant uncertainty for California employers, much of which is due to the fact that PAGA also allows the aggrieved employee to recover legal fees from the employer.
2. Why should I care about PAGA?
If you have any employees, PAGA can bite you. Even small, technical violations of the labor code easily snowball into huge lawsuits under PAGA.
Consider what happens to a Kern County ag business with 30 employees who get paid every week. One day, the payroll manager decides to replace the company’s name and address on the pay stubs with the company’s logo. Oops, that violates Labor Code Section 226. A year later, the company’s potential liability under PAGA could be half a million dollars, plus attorney fees. Paying attention now?
Under PAGA, a disinterested government official isn’t the one deciding whether to prosecute a claimed violation of the Labor Code. Instead, an “aggrieved employee” decides whether the employer must defend the costly lawsuit, and a cottage industry of plaintiffs’ lawyers stand ready and willing to represent employees. The elephant in the room is the profit motive, and the Plaintiffs’ attorneys are the only real winners in almost every PAGA lawsuit.
3. What is the lifecycle of a PAGA lawsuit?
Technically, before filing a PAGA lawsuit, the aggrieved employee is required to notify the Labor and Workforce Development Agency of the alleged violations. The LWDA has 60 days to investigate the PAGA claim. But the LWDA almost never investigates anything. Instead, after the 60-day waiting period, the aggrieved employee is given authority to file a civil lawsuit against the employer on behalf of the state of California.
PAGA claims are often filed as part of a “class action” and in conjunction with private (i.e., nongovernment) claims for damages. A class action is a mechanism where an individual can bring a lawsuit on behalf of a larger group of similarly situated people. Often, a wage and hour class action will last years and cost the employer hundreds of thousands of dollars to defend.
Once the lawsuit has been filed, the “discovery” phase of the lawsuit begins. Discovery is the process by which parties in a lawsuit obtain information. The first thing the plaintiff will ask for is the contact information of the company’s current and former employees, along with the company’s written policies, personnel files, payroll records and so on. Lawsuits are a bit like cancer in that the treatment is sometimes worse than the disease. In many cases, the demands of the discovery phase are enough to entice employers to settle and plaintiff’s attorneys are keenly aware of that reality.
In a class action, the court eventually rules on whether the individual employee is permitted to represent the purported class of other employees before the lawsuit can go further. But in a PAGA case, there is no such requirement. Translation: Employers have fewer options for throwing out a frivolous PAGA case.
4. How is PAGA affecting Kern County businesses?
In Kern County, there are currently dozens of PAGA lawsuits pending against employers. These lawsuits range from claims against the largest ag and oil companies to claims against companies with only a handful of employees.
Lawsuits are expensive to defend. Once a PAGA case is filed, there is very little the employer can do to limit or control the scope of the lawsuit. Again, the courts will order the employer to turn over information regarding all of its employees, even those who work in different locations or divisions, and without any showing that the case has merit. Often, businesses decide it is cheaper to settle a case than take it all the way through trial and appeal, even if the case has no merit.
5. Is PAGA working?
PAGA is working great if you are a plaintiff’s lawyer. For businesses, it has been a disaster and it does not seem to be producing any real benefit to workers.
Recent statistics show an average of 5,900 PAGA filings in California per year, with the state collecting an average of $5.7 million in penalties per year. Each PAGA notice resulted, on average, in the state getting about $975 in penalties and workers getting about $325.
But each notice costs a California business significant amounts of time, energy, stress and legal fees, along with hefty settlements for plaintiff’s lawyers.
6. What can I do to protect my business against a PAGA lawsuit?
There are two sure-fire ways of avoiding PAGA: Don’t have employees and don’t do business in California.
Other options? Not many. Arbitration agreements don’t apply to PAGA lawsuits. Class-action waivers don’t apply to PAGA lawsuits. And doing things the way you always have is just begging for trouble. Common practices like productivity-based compensation or safety bonuses have recently been attacked by the courts and opened companies to PAGA lawsuits.
The long-term solution to PAGA will almost certainly need to be legislative. Various trade groups and politicians are working to make this happen. Until they do, the best defense is a good offense: Review your employment policies regularly and keep abreast of the constantly changing California labor laws. If you get a PAGA notice, do not ignore it. In some cases, employers can avoid liability for PAGA claims if they immediately fix the issue. Unfortunately, however, short deadlines to complete the fix often pass before the company has even hired a lawyer.
If you are interested in learning more about how you can protect your business against PAGA lawsuits, Belden Blaine Raytis lawyers Kaleb Judy and Viviano Aguilar will be presenting a “Lunch and Learn” about PAGA on March 21. For more information or to RSVP, please contact firstname.lastname@example.org.
Viviano E. Aguilar and Kaleb L. Judy practice labor and employment law at Belden Blaine Raytis LLP. Kaleb and Viviano grew up in Tehachapi and are childhood friends. Kaleb earned his bachelor’s degree in political science from CSUB in 2006 and his J.D. from Pepperdine University School of Law in 2009. He became a partner in Belden Blaine Raytis, LLP in 2016. Viviano earned his bachelor’s degree in philosophy from UCLA in 2007 and his J.D. from Loyola Law School Los Angeles in 2015.