California’s business groups have struck a deal to reform one of the state’s worst laws | Opinion
California’s business groups and labor interests have seemingly done the impossible: struck a deal to reform one of the state’s worst laws, the Private Attorneys General Act (PAGA).
The agreement could provide a lifeline to the countless employers who have been unfairly targeted by the threat of PAGA lawsuits. The key to success is drafting clear language to guard against misinterpretation by trial lawyers and the courts.
PAGA took effect in 2004 to address an enforcement shortfall at the state’s labor department, allowing workers to hold bad actors accountable without requiring state resources to investigate each violation. However, the significant financial incentives for filing PAGA lawsuits — which award one-third or more of the total payout to the plaintiff’s counsel — turned the system into a gold mine for trial lawyers. As a consequence, PAGA lawsuits, and threats of lawsuits, exploded.
Opinion
In 2023, nearly 8,000 PAGA notices were filed with the California Labor and Workforce Development Agency, a 34% increase from the previous year and a nearly 400% increase over the prior decade. Since 2013, at least $10 billion has been paid out in PAGA settlements, with billions going into the pockets of trial lawyers who file these claims.
PAGA abuse was aided, however unintentionally, by the courts. That’s why it’s so important to get the language right in PAGA reform.
Consider the issue of standing (whether an employee has the right to sue his or her employer under PAGA). Looking at PAGA’s legislative history, final bill analysis and group of original proponents, it’s clear that the law was intended for plaintiffs who suffered actual harm for an alleged violation of the state’s labor code. But trial lawyers convinced the California Supreme Court to adopt a broader view of standing, where employees could sue for alleged violations even if no harm had been suffered.
If it sounds ludicrous, it is.
Appropriately, this issue of standing is front and center in the PAGA reform deal. Per Gov. Gavin Newsom’s summary of the reform deal, the revised law would require “the employee to personally experience the alleged violations brought in a claim,” and sets a one-year look back period for the violation. In writing this section, the legislature needs to be explicitly clear about this goal and close the door to future creative interpretations by trial lawyers or state Supreme Court justices.
The reform package also appears to remove one of trial lawyers’ most potent weapons: The threat of crushing financial penalties for alleged violations.
PAGA attorneys have realized that minor technical violations of the state’s complex labor code, multiplied across thousands of employees, can add up to seven- and eight-figure potential penalties that scare even the best-capitalized employers into settling. Per the governor, the reform package will cap penalties for employers who quickly fix alleged labor law violations and reduce penalties for frivolous violations (e.g. a paystub typo) where the employee did not suffer economic harm.
For PAGA cases that do go to trial, the proposed reform package will give lower courts the ability to rein in PAGA’s excesses. This would restore a power known as “manageability,” which the state Supreme Court took away in a decision earlier this year. If you’re an employer facing hundreds of PAGA claims, you could technically face hundreds of trials if you wanted to fight each one in court. This creates an insurmountable financial barrier for most business owners, and also clogs up the court docket.
If worded correctly, these provisions will make it easier for employers to go to trial and for courts to manage their time.
But this deal isn’t all good news. If enacted, PAGA plaintiffs would be empowered to seek injunctive relief (an order from the court) to force an employer to fix alleged labor law violations. This power could be weaponized by labor unions and trial lawyers seeking to target a specific employer over a disfavored employment practice (e.g. the use of independent contractors). Employers could be forced to make radical changes to their business, close their doors or risk the criminal penalties that come with being in contempt of court.
Hurdles still exist to get reform done. But if the legislature can get the language right, it’s a reform worth supporting.
Tom Manzo is the president and founder of the California Business and Industrial Alliance.
