California To Reform PAGA, Create A Better System

On June 19, the California Self Storage Association (CSSA) reported that the Fix PAGA coalition, which represents non-profits, social justice advocates, family farmers, health care providers, and businesses, had announced its support of legislation that would reform California’s broken Private Attorneys General Act (PAGA). After months of discussions between labor advocates and the coalition, the agreement was announced by Gov. Gavin Newsom, Senate President Pro Tempore Mike McGuire, and Assembly Speaker Robert Rivas.

If passed by the legislature, the legislation would reform PAGA to ensure workers retain a strong tool to resolve labor claims and receive fair compensation, while limiting the shakedown lawsuits that hurt employers and employees.

“This package provides meaningful reforms that ensure workers continue to have a strong vehicle to get labor claims resolved, while also limiting the frivolous litigation that has cost employers billions without benefiting workers,” said Jennifer Barrera, president and CEO of the California Chamber of Commerce. “We thank Gov. Newsom, Senate President Pro Tempore McGuire, and Assembly Speaker Rivas for navigating this agreement, and we encourage the legislature to pass this package quickly.”

“PAGA’s lawsuit-first approach has really hurt community-based organizations like those we represent, jeopardizing services and supports for Californians with disabilities,” said Barry Jardini, executive director of the California Disability Services Association. “This legislation can help our members focus on services rather than lawsuits that threaten our ability to support California’s most vulnerable.”

The core elements of the reform package are:

• Employee Share of Penalty - Increases share employees receive from any penalty from 25 percent to 35 percent.
• Standing - Requires the employee (plaintiff) to personally experience the alleged violations brought in a claim. Alleged violations must have occurred within the last year (presently, there is no time limitation).
• Penalty Caps - For employers who proactively take steps to comply with the Labor Code before receiving a notice, the maximum penalty that can be awarded is 15 percent of the applicable penalty amount. For employers who take steps to fix policies and practices after receiving a PAGA notice, the maximum penalty that can be awarded is 30 percent of the applicable penalty amount. Reduces the maximum penalty where the alleged violation was brief or where it is a wage statement violation that did not cause confusion or economic harm to the employee (i.e., misspelling of company name or forgetting to add “Inc.” on the pay statement). Levels the playing field for employers who pay weekly by ensuring a penalty is adjusted. Presently, such employers are penalized at twice the amount because penalties accrue on a per pay period basis. Addresses derivative claims. Creates a new penalty ($200 per pay period) if an employer acted maliciously, fraudulently, or oppressively.
• Employer Right to Cure - Expands which Labor Code sections can be cured, so employees are made whole quickly. Protects small employers by providing a more robust right to cure process through the state labor department (Labor and Workforce Development Agency) to reduce litigation and costs. Provides an opportunity for early resolution in court for larger employers.
• Strengthening Enforcement Agency - The Administration will pursue a trailer bill to give the California Department of Industrial Relations (DIR) the ability to expedite hiring and filling vacancies to improve and expedite enforcement of employee labor claims.
• Judicial Discretion (Manageability) - Codifies that a court may limit both the scope of claims and evidence presented at trial.
• Injunctive Relief - Allows for injunctive relief.

A recent report found that since 2013 there have been nearly $10 billion in PAGA court case awards, but due to significant attorney fees, workers receive only a small portion of these awards. PAGA hurts virtually every industry and employer in California, including non-profits, local governments, family-run businesses, and others.

"PAGA is the ultimate cash cow for California trial lawyers," Steve Mirabito, president of StoragePRO Management, told MSM. "It was purposely designed to incentivize labor lawyers to attach a PAGA claim on as many labor-related cases, regardless of the validity of those claims, resulting in California employers paying upwards of $1.4 billion annually, while traumatizing California business owners for innocent minor labor code violations. Even the Labor Commissioner admitted most PAGA claims fell short of protecting employee interests. Most egregiously employees typically take home a fraction of the settlement while their attorneys reap the majority for themselves."

Continues Mirabito, "This law has victimized too many California businesses causing their owners to suffer from anxiety and fear simply for trying to run a business in the most hostile state for employers to do business. It is unfathomable a good faith employer gets sued for a minor technical violation and must focus their time and energy dealing with a trial lawyer rather than working on their business. Hopefully the PAGA reform legislation will allow for an employer an opportunity to cure (or fix) their mistake."  

Mirabito says that his company was sued for a PAGA violation by a disgruntled employee who worked with them for less than two months, and who had received disciplinary warnings. "The employee quit, and we were sued for a PAGA violation even though the employee never personally experienced the alleged violation," he recalls. "As a result, my employees lost bonuses and pay raises so the plaintiff’s attorney could walk away with 75% of the take! That is not fair to the business, to society, and most importantly an aggrieved employee."

PAGA reform legislation will be considered by legislature as early as next week. The deadline for measures to be withdrawn from the November 2024 ballot is June 27, 2024. If the PAGA compromise measure is passed and signed by the Governor prior to June 27, the Fix PAGA coalition will remove it’s November 2024 PAGA reform measure from the ballot.