THE FUTURE OF PAGA ON NOVEMBER BALLOT
As has been the law for two decades, the Private Attorney Generals Act (PAGA) allows “aggrieved” employees to file a lawsuit on behalf of themselves and on behalf of other “aggrieved” employees (as their “representative”) and on behalf of the state of California, alleging a broad range of violations of the California Labor Code.
With PAGA actions, there is the potential for significant monetary awards against employers, of any size, for what are relatively minor Labor Code Violations. The default penalty for a violation of the Labor Code is $100 per employee per pay period for an initial violation and $200 per employee per pay period for each subsequent violation.
And because a PAGA lawsuit does not require the Plaintiff to meet the strict procedural requirements of a Class Action (e.g. having the class “certified”), PAGA lawsuits are much easier to file by disgruntled employees and are becoming more common than Class Action litigation.
The PAGA statute provides that the state of California shall receive 75% of the recovery in a PAGA action, but the reality is that the main benefactors are the attorneys filing the lawsuits. The California Chamber of Commerce recently reported that the average payment that a worker receives from a PAGA case filed in court is $1,300.00, compared to receiving $5,700.00 for cases brought before by the Labor Commissioner (or Division of Labor Standards Enforcement).
In these cases, the attorneys usually recover around 33% of the total recovery, or $372,000.00 on average, no matter how much legal work was actually required to be performed.
In addition to receiving lower average recoveries in PAGA cases, the “aggrieved employees” also end up waiting almost twice the amount of time to receive their portion of the settlement compared to pursuing an individual claim for wages. The average wait time for a PAGA court case is 23 months compared to 12 months for the state-decided cases.
CALIFORNIA FAIR PAY AND EMPLOYER ACCOUNTABILITY ACT
In an effort to combat the abuse of PAGA, a ballot initiative entitled The California Fair Pay and Employer Accountability Act of 2022 (“FPEAA”), will appear on the California November 2024 ballot. If this initiative is approved by the voters, it will result in a substantial overhaul of the system, and employee claims will again be filed with the Labor Commissioner’s office, without the need for the employee to retain an attorney.
The proposed changes to PAGA would also:
- eliminate the Labor Commissioner’s authority to contract with private organizations or attorneys to assist with enforcement,
- require the Legislature to provide funding for Labor Commissioner enforcement,
- require the Labor Commissioner to provide pre-enforcement advice,
- allow employers to correct identified labor-law violations without penalties,
- award all penalties to the “aggrieved” employee, and
- authorize increased penalties for willful violations.
Proponents of the ballot initiative claim these changes will protect businesses from “shakedown” lawsuits and allow employees to seek individualized recovery of their legitimate claims.
WHY IS REFORM OF PAGA NEEDED
Here are some of the problems that have been identified with the PAGA statute and the resulting lawsuits:
- There is no requirement under PAGA that an employee actually suffer harm. For example, if an employee’s paycheck is missing just one of the many items that are legally required (e.g. the full legal name of the business entity) that is a Labor Code violation leading of PAGA penalties. This missing information does not result in any actual harm to the employee.
- A PAGA Plaintiff need only personally incur “one or more of the alleged violations” but can also sue for other violations that they themselves did not actually suffer. A PAGA Plaintiff can file suit for multiple Labor Code violations but needs to only have personally suffered only one of the alleged violations. For example, the Plaintiff was not paid their final wages in a timely manner, but they sued for missed meals and breaks, improper wage statements, etc.
- PAGA penalties are imposed regardless of intent or the extent of any harm. Employers are held liable even if they make a good faith error.
- PAGA applies to all employers regardless of size. Small businesses can be sued under PAGA and the resulting financial impact can be devastating.
- PAGA provides for the recovery of a “civil penalty.” The PAGA statute provides for the recovery of “civil penalties” but other statutory penalties associated with the Labor Code violations claimed to have occurred can be recovered, creating what is called “stacking” of penalties against the employer.
- PAGA provides a statutory right to attorney fees for the employee’s attorney only. This Plaintiff’s only attorney fees provision provides huge incentives for plaintiffs’ attorneys to file the case and recover large attorney fees.
What Should I Do Now?
In addition to supporting the passage of the California Fair Pay and Employer Accountability Act of 2022 (“FPEAA”), employers should carefully review their policies and practices to ensure or minimize the risk of a potential PAGA Action including but not limited to the following:
- Paychecks: Ensure that all legally required information is contained on an employee’s paycheck and paystub;
- Pay either bi-weekly or semi-monthly; do not pay weekly. Because the PAGA penalties are assessed per pay period per employee, reducing the number of pay periods reduces the potential recovery. The difference between a penalty multiplied by a weekly period of 52 versus 24 or 26 pay periods is significant. For example, $100 x 52 paychecks x 25 employees = $130,000 per year of penalties or $100 x 24 x 25= $60,000.00.
- Reimburse any expenses. Each employee who incurs any costs or expenses in performing their job duties (e.g., cell phone reimbursement, reimbursement of costs in using their own laptop computers, etc.) must be reimbursed either the actual costs (if it can be determined) or a reasonable amount of reimbursement.
- Ensure Meal Breaks Are Taken: Ensure that all non-exempt employees timely take their full unpaid uninterrupted meal break, that employees are allowed to leave the premises, and that the breaks are properly recorded on the employees’ time sheets.
- Ensure that Rest Breaks are Taken. Ensure that non-exempt employees timely take their full unpaid duty free 10-minute (or longer if permitted) rest break, and that the meals and breaks are not combined to leave early or take a longer meal/rest break period, and the employee is permitted to leave the premises.
- Ensure The Proper Implementation of An Alternative Work Week (AWS) (e.g., 4 days/10 hours): Any AWS must have been created, voted on by the affected work unit by secret ballot and registered with the Labor Commissioner before being implemented to avoid any claim of overtime.
These are just a few of the many claims that Plaintiff’s assert in PAGA actions. It is imperative that employers are vigilant in their compliance efforts and seek to pass the November ballot initiative.
This Newsletter is intended as a brief summary of employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2024.