Understanding PAGA’s Impact
California’s Private Attorneys’ General Act, or PAGA, just celebrated its 20th birthday despite repeated, failed attempts at its repeal. California’s Labor Code is among the strictest in the nation and California law affords workers more protections than even New York Labor Law.
Since its enactment, PAGA lawsuits have increased over 1000% and, each year, the Labor and Workforce Development Agency (LWDA) receives over 5,000 PAGA notices. These cases can generate staggering monetary awards. The default penalty for 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.
Beyond Class Actions
Because of its statutory framework, which treats PAGA cases as“representative actions” and not class actions, the threshold to bring such a lawsuit is much lower and it is common for counsel to engage in “notice pleading”, meaning that complaints merely recite all potential violations, not necessarily ones that a plaintiff actually incurred, resulting in monumental fishing expeditions.
In a case brought against Uber [1]claiming misclassification of drivers as independent contractors which resulted in failure to provide expense reimbursement and tips, the LWDA noticed the court that, if plaintiffs were to prevail, the PAGA penalties would exceed $1 billion.
The truth is that, based on a lengthy statute of limitations, PAGA cases benefit counsel far more than workers and take twice as long to adjudicate or settle. Even the state recognizes that most PAGA settlements do not necessarily protect employees’ interests. Although 75% of PAGA penalties are supposed to go to the state in actuality that doesn’t always happen because settlement agreements frequently allocate inconsequential amounts to that end.
California Supreme Court’s PAGA Ruling
The California Supreme Court has just unanimously ruled that trial courts do not have the authority to strike these claims in the interest of judicial efficiency on the basis of unmanageability. [2]Even though in class actions, standards including commonality, typicality, and the superiority of class adjudication must be established in both federal and state courts, this is not required in PAGA cases because its statutory goal is maximal enforcement of the labor laws.
Employers of California workers need to consider arbitration agreements as a prophylactic strategy to reduce the PAGA threat. That said, the Uber case held that, even when an individual employee can be forced into arbitration, he retains standing to maintain a representative PAGA claim.
Mitigating PAGA Risks
One solution is to draft arbitration agreements that shift the decision-making as to whether the employee is aggrieved for PAGA purposes and also contain language that any PAGA claims will be stayed pending arbitration of individual ones.
This highlights the need for business management to recognize the ongoing risks posed by PAGA, consult with seasoned employment counsel, and consider viable arbitration agreements.
[1] Adolph v. Uber Technologies Inc., 14 Cal. 5th 1104 (2023).
[2] Estrada et al. v. Royalty Carpet Mills, Inc., S74340 (Jan. 18, 2024).
