PAGA Has Failed Californians – Unless You’re A Plaintiff’s Lawyer That is

Proskauer - California Employment Law
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Proskauer - California Employment Law

We have long reported about that modern marvel of well-intentioned legislation gone awry known as the Private Attorneys General Act (“PAGA”) – and we also have noted that in practice, PAGA stands for Pretty-much All Goes to the Attorneys.  A recently published report (the “Report”) from some of the former leaders of the California Department of Industrial Relations and Cal/OSHA suggests we were right.

Originally enacted in 2004 to remedy an ostensible “strain on government resources,” PAGA enables an “aggrieved employee” to file representative actions on behalf of fellow employees to recover civil penalties from an employer for alleged Labor Code violations.  Three-quarters of the recovery is supposed to go to the State of California—not the “aggrieved employees.”  However, certain “bounty hunter” plaintiffs’ lawyers routinely use PAGA to obtain astronomical settlements for Labor Code violations that caused little (and often no) actual injury to any current or former employees but that cost hundreds of thousands of dollars or more to defend.

The Report analyzes the findings of several public records requests and indicates a few of PAGA’s uncomfortable realities.  First, although an employer’s average settlement payout in cases that are pending before the state Labor and Workforce Development Agency (“LWDA”) is less than half (41%) the amount paid to settle a lawyer-litigated PAGA case, employees receive nearly twice as much money in the former as compared to the latter cases because lawyers collect at least a third of the overall payout.  Litigated PAGA actions also drag on more than seven months longer than those filed with the LWDA – subjecting employees and employers alike to lengthy litigation-induced limbo.

Also, according to the Report, the State of California—which, again, collects 75% of any recovery—receives an average of $27,000 less from PAGA actions prosecuted by lawyers in court than those pending before the LWDA.  And employers, for their part, pay an average of $44,000 more in litigation fees and fees paid to settlement administrators in court actions.

The Report also compares the “settlement data” from cases pending before the LWDA with data from those cases that were litigated in court by lawyers.

 

Cases Pending Before
the LWDA

Cases Filed in Court
by Attorneys

Average Overall Cost to Employer (including settlement, attorney’s fees and costs)

$503,799

$1,231,620

Average Award Paid by Employer

$430,992

$732,635

Average Penalty Paid to State

$72,974

$45,888

Average Award Received per Employee

$4,701

$2,078

Average Case Duration

485 days

707 days

In short, PAGA actions filed in court result in far less favorable outcomes for employees, employers, and the state – so, exactly who does benefit from the current system?  The Report notes that plaintiff-side “[a]ttorneys who file PAGA cases with a court are compensated with fees that represent 33% or more of the workers’ total recovery, averaging to a total of more than $405,000 per case.”  Case closed.

The Report’s recommendations to fix this obviously out-of-whack statute include using the existing PAGA fund to expand and streamline the Division of Labor Standards Enforcement’s ability to utilize its case resolution procedures.  Funding aside, the Report noted the State should utilize an “expedited administrative process” featuring less “unnecessary bureaucracy” to quickly deliver case results to parties – thus enabling the prompt resolution of non-compliant activity while also ensuring compliant employers aren’t forced to pay a king’s ransom to fend off thirsty fee-seeking plaintiffs’ lawyers.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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