California’s Private Attorneys’ General Act, better known as “PAGA,” allows a single employee to file a lawsuit to recover civil penalties owed to the State of California for the employer’s violation of California’s labor laws.
The original concept for PAGA was a simple one: due to the State’s limited resources to enforce labor laws, the State wanted to encourage individual employees and their lawyers to do that enforcement work on their own. In exchange, the State would allow that employee, and all other “aggrieved employees,” to share 25% of the civil penalties that ordinarily would have gone entirely to the State. Plus, as a way to incentivize that employee’s lawyer, the State would require the employer to pay the employee’s attorneys’ fees on top of the civil penalties imposed.
Thus PAGA was born in 2004. Now, as a result of PAGA, every employee in the State is “deputized” to sue his or her employer in the name of the State and seek penalties and attorneys’ fees – not only for violations suffered by that employee, but also for the violations suffered by every other “aggrieved employees.”
There are several aspects of PAGA that make it particularly dangerous and costly for California employers:
— The employee who sues under PAGA is suing in a “representative capacity,” on behalf of the entire State of California. So that employee is entitled to sue for Labor Code violations that she suffered, plus violations suffered by every other employee – even if the employee who sues didn’t suffer any violations herself.
— Most PAGA penalties are imposed per pay period, per employee. A typical penalty is $100 for the first pay period violation and $200 for every pay period violation thereafter, per employee. So, with 24 pay periods for most employers, one Labor Code violation for one employee results in penalties of $4,700. Then, multiply that by the number of other violations discovered. Then, multiply that by the number of employees. For a small business with “only” 20 employees, for example, where 14 violations were discovered, the civil penalties owed would be $4,700 X 20 employees X 14 violations, or $1,316,000.
— PAGA also requires the losing employer to pay the employee’s attorneys’ fees. That could easily add another $50,000 to $500,000 (or more) depending on how complicated the PAGA claims are, how many employees are impacted, and how hard the employer fights. The attorneys’ fees threat alone causes many employers to settle even flimsy PAGA claims quickly. That’s why one business group called PAGA an “unconstitutional tool of extortion.”
— In essence, a PAGA action functions like a class exception with one huge exception – there is no requirement that a PAGA case be certified as a class action. In a class action case, which also allows for huge recoveries for large groups of employees, the plaintiff-employee and her lawyers have to do a tremendous amount of up-front work to get their class certified. And that hurdle discourages many potential plaintiffs and their lawyers. But no such hurdle exists for PAGA claims because no class certification is required. Any employee, represented by any attorney, can bring a PAGA case and “stand in the shoes” of the State of California and sue for Labor Code violations suffered by hundreds or even thousands of employees.
— A PAGA plaintiff is entitled to broad discovery rights to find out the identities of all other potentially “aggrieved employees.” This means that a PAGA plaintiff can sue first and then force the employer to produce payroll records, personnel files, and other records that identify (a) the names and contact information for all other employees at the company, and (b) the Labor Code violations suffered by each and every one of those other employees. Inevitably, this broad discovery right yields documents and corporate records that show still more Labor Code violations suffered by still more employees – and the PAGA penalty vortex begins.
— PAGA claims are tried before a judge, not a jury. This is because PAGA claims are considered equitable in nature. So-called “bench trials” are far less costly, less complicated, and less time-consuming for plaintiffs and their lawyers. Thus another potential hurdle has been removed, which creates more incentive to bring PAGA claims in the first place.
— And, finally, PAGA claims cannot be subjected to mandatory arbitration, like other employment-related claims can be. So, even if an employer has all employees sign a pre-hire arbitration agreement, that employer still faces the significant risk of a PAGA bench trial.
Without question, PAGA claims are dangerous and costly for California employers. But there is hope. As PAGA claims have skyrocketed over the past few years, California courts have been issuing decisions at a furious pace, and some of those decisions – as well as recent laws signed by the California Governor – have given employers some meaningful defenses to PAGA claims.
At Workplace Legal, we know PAGA inside and out. We know the PAGA claims that are most often brought, and we know the PAGA defenses that are most often effective. But we do a lot more than just defend PAGA claims for companies — we also prevent them. At Workplace Legal, we have a substantial advice-and-counsel practice that assists employers with HR and employment questions on the front-end, before Labor Code violations occur. We provide smart day-to-day HR and employment law advice to employers across California, so they stay out of trouble and avoid PAGA lawsuits in the first place. Contact us today if you have PAGA questions or need help.