Many employers in California have had the unfortunate experience of either litigating a lawsuit or resolving a pre-litigated matter under the Private Attorneys General Act (PAGA), typically after extensive time, effort and resources have been expended. In both instances, the cost to defend is usually enormous. Indeed, some small (and large) businesses have been forced to declare bankruptcy because of PAGA claims.
The Rise Of PAGA And Its Adverse Impact On Employers
Under PAGA, an “aggrieved employee” may bring a representative action on behalf of him or herself and other “aggrieved employees” for civil penalties for various violations of the Labour Code. (Labour Code §§ 2698, et seq.)
PAGA was intended to deputise citizens as private attorneys general to enforce the labour code considering the state government’s limited resources. Particularly, PAGA – sometimes called “the Bounty Hunter” statute – allows these employees to step into the shoes of state regulators to recover civil penalties and to receive part of the amount recovered as compensation: seventy-five per cent (75%) of the penalties recovered go to the state, and twenty-five (25%) go to the employees.
However, since its enactment in 2004, rather than streamline and regulate employer violations of the Labour Code, PAGA claims have skyrocketed for various reasons unrelated to legitimate violations, including the fact that employees cannot waive their right in an arbitration agreement to bring PAGA claims, thereby creating litigation challenges for employers. Further, because PAGA allows for attorneys’ fees, most employers will settle PAGA claims before trial to avoid expensive litigation.
Notably, underlying claims that create exposure in PAGA actions include the full gamut of wage and hour violations, such as missed meal and rest breaks, failure to provide itemised wage statements, and failure to pay overtime. Given the array for potential exposure, even for the scrupulous employer, plaintiffs are incentivised to file complaints alleging a wide variety of purported violations, even if they did not or could not have personally suffered a violation of the subject provision.
The Potential Solution: California Fair Pay And Employer Accountability Act
In October 2021, several business organisations, including the California Chamber of Commerce, California New Car Dealers Association and Western Growers proposed an initiative, the California Fair Pay and Employer Accountability Act (CFPEAA), for the 2022 ballot. If approved by California voters, the CFPEAA effectively repeals PAGA by eliminating the ability to pursue civil penalties via a representative action.
For employers, the greatest upside of the CFPEAA, as it relates to future PAGA lawsuits, is that it would eliminate the ability for aggrieved employees to stand in the shoes of the Labour Commissioner and recover civil penalties through a representative action. Instead, the Division of Labour Standards Enforcement would have greater enforcement responsibility and the California Legislature would be required to provide funding for the Labour Commissioner to enforce Labour Code violations (i.e., the Labour Commissioner handles violations). This would remove the supposed need for private enforcement.
Additional benefits of the CFPEAA to employers includes, but is not limited to, the following:
- Reforms California’s wage and hour enforcement law to:
- Eliminate shakedown lawsuits on small businesses
- Streamline the system to produce quicker resolutions
- Avoid prolonged and costly court processes
- Allows workers to recover 100% of the penalties imposed without hiring a lawyer, instead of 25% going to workers and 75% going to the state
- Provides resources to guide and assist employees with compliance
- The Consultation and Publication Unit would provide:
- Confidential consultation; and
- Binding compliance letter advice
- The Consultation and Publication Unit would provide:
- Prohibits the outsourcing of the Labour Commissioner’s enforcement duties/actions
- Redirects the state’s portion of any remaining PAGA settlements to the Labour Commissioner to fund enforcement including the costs of this program
Clearly, for employers, the CFPEAA is a promising solution to California’s rampant PAGA problem. Supporters of the initiative have until June 6, 2022, to collect at least 623,212 valid signatures to qualify the measure for the November 2022 general election. While the CFPEAA may admittedly struggle to qualify for the ballot (considering that three PAGA-reform initiatives did not make it on the ballot in 2017), the passage of Proposition 22 in 2020 demonstrates that business-driven employment law ballot measures can be adopted, even in the very employee-friendly Golden State.
About the authors:
Antwoin Wall is a Senior Associate with Pearlman, Brown & Wax, LLP assisting clients in employment matters, including claims of discrimination, harassment, retaliation, wrongful termination, and wage and hour litigation. He can be reached at adw@4pbw.com.
Corinne Spencer is a Senior Employment Counsel and Chair of the Labour and Employment Practice Group at Pearlman, Brown & Wax, LLP. She focuses on counselling clients in employment-related matters including litigation, risk assessment, policy preparation, and training. She can be reached at cds@4pbw.com.
