PAGA is warping the California Labor Code

The mere mention of the Private Attorneys General Act of 2004 is enough to strike justifiable fear into any employer with California employees. This ill-conceived piece of legislation permits any current or former California employee to sue his or her employer for civil penalties for a multitude of alleged violations of the byzantine California Labor Code, no matter how trivial and without regard to whether anyone was ever actually injured.

Whatever may have been the intent of PAGA when it was enacted, it has since evolved into a legalized shakedown for opportunistic attorneys to exploit at the expense of honest businesses. Because of the severe abuse PAGA has engendered, the California Legislature should repeal, or at least significantly revise, this statute that is driving businesses out of California.

The ostensible purpose of PAGA "is to supplement enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves." Arias v. Superior Court, 46 Cal. 4th 969 (2009). A series of decisions by California courts have forced this lofty goal to yield to a much grimmer reality. The first of these is the California Supreme Court's decision in Arias, which held that a PAGA plaintiff may assert representative claims in state court without certifying a class. The California Supreme Court compounded PAGA's manageability problems in Williams v. Superior Court, 3 Cal. 5th 531 (2017), holding that a PAGA plaintiff is presumptively entitled to the names and contact information of all of the defendant's employees statewide without a preliminary showing that the plaintiff's claims have even minimal merit. The combined holdings of Williams and Arias have led many judges to accept that bare conclusory allegations of statewide Labor Code violations are enough to open the floodgates to massively burdensome statewide discovery, without any assurances that the plaintiff is even an "aggrieved employee."

The California Court of Appeal has also issued a number of decisions on PAGA that render the statute fundamentally unfair and unworkable. In Huff v. Securitas Sec. Servs. USA, Inc., 23 Cal. App. 5th 745 (2018), the Court of Appeal held that a PAGA plaintiff who suffers a single Labor Code violation has standing to assert representative PAGA claims for any Labor Code violation committed against any employee. This uncompromising holding leads PAGA plaintiffs to argue that under Huff, an employee in San Diego, who on one occasion received a wage statement with a typo on it, may bring PAGA claims asserting that employees in Eureka were not provided with meal periods, and that employees in Stockton did not receive suitable seating, even though the plaintiff concedes he or she was always provided with compliant meal periods and always had a seat to sit on. Two more decisions, Raines v. Coastal Pac. Food Distributors, Inc., 23 Cal. App. 5th 667, 677-82 (2018) and Lopez v. Friant & Assocs., LLC, 15 Cal. App. 5th 773, 779 (2017), each hold that a PAGA plaintiff is entitled to collect penalties for purely technical violations of the Labor Code without proof of actual injury, even when such proof is statutorily required to obtain individual non-PAGA penalties for the same violations. Essentially the safeguards against frivolous suits baked into certain Labor Code claims is eviscerated because of the way courts have interpreted PAGA.

In light of these decisions and PAGA's significant overbreadth, a typical PAGA action today consists of a plaintiffs' law firm filing a complaint largely copied and pasted from the countless others filed by the same lawyers alleging in the most general and conclusory terms with no particularized facts that an employer either failed to provide meal and rest periods, required its employees to work off-the-clock without pay, failed to reimburse expenses, or some combination thereof. PAGA cases often focus on hyper-technical and trivial violations of California's confusing and inflexible Labor Code provisions. Complaints will frequently allege an employer failed to include some unimportant piece of information on a wage statement -- that no one ever reads, or failed to "provide" meal and rest periods because of some non-substantive semantic argument about the wording of a policy. Since PAGA was enacted in 2004, over 100 law firms have each sent 50 or more notices to the California Labor Workforce and Development Agency, which is a prerequisite to filing a PAGA case in most instances. Cal. Labor Code Section 2699.3(a). At least five plaintiffs' firms have served over 500 LWDA notice letters. That's more than 2,500 PAGA suits from this small cross-section of the plaintiff's bar.

The way PAGA penalties are computed also results in massive potential liability for the smallest mistakes. For an "initial violation" of the California Labor Code, PAGA imposes a penalty of up to $100 per employee per pay period, where the provision allegedly violated does not already have a civil penalty associated with it. Cal. Labor Code Section 2699(f)(2). Plaintiffs typically assert that the statute permits penalty "stacking," meaning a single unlawful act can give rise to violations of multiple provisions of the California Labor Code, including purely derivative violations such as claims that wages statements were inaccurate or earned wages were paid late as a result of an overtime error. Thus, a small employer with 30 employees who pays on a workweek basis can face in excess of $1,000,000 in potential penalties for a single good faith mistake resulting in miniscule amounts of unpaid work.

Due to the lack of a class certification protections and risk of crushing liability for even the most minor, inadvertent, and technical mistake (not to mention the expense and burden of complying with statewide discovery obligations), PAGA cases are rarely tried or resolved on the merits. Instead, the in terrorem effect of receiving a PAGA complaint is often enough to compel a settlement regardless of the merits of the allegations. See Kohen v. Pac. Inv. Mgmt. Co. LLC & PIMCO Funds, 571 F.3d 672, 678 (7th Cir. 2009) ("When the potential liability created by a lawsuit is very great, even though the probability that the plaintiff will succeed in establishing liability is slight, the defendant will be under pressure to settle rather than to bet the company, even if the betting odds are good"). And because the lion's share of any PAGA recovery is awarded to the state, the employees end up with very little, making their attorneys the primary beneficiaries. Cal Labor Code Section 2699(g) (awarding prevailing PAGA plaintiff attorneys fees); Cal. Labor Code Section 2699(i) ("civil penalties recovered by aggrieved employees shall be distributed as follows: 75 percent to the Labor and Workforce Development Agency ... and 25 percent to the aggrieved employees").

PAGA as it exists today has evolved into nothing more than a tax on doing business in California for those employers unfortunate enough to be hit with a PAGA complaint by the marauding firms that file such cases. PAGA has perverted the California Labor Code (established to protect employees) and court system (created to resolve real disputes between parties) into a mechanism for enriching enterprising attorneys at the expense of their intended purposes. The California Legislature should repeal this detestable statute. At a minimum, PAGA should be revised to: (1) require class certification to proceed with a claim; (2) significantly reduce the maximum available penalties; (3) require the plaintiff to have actually suffered the violations alleged; (4) provide a defense for violations made in good faith or which cause no injury; and (5) require the LWDA to evaluate the claim and affirmatively give permission to a PAGA plaintiff before a case can commence. 