California's PAGA under scrutiny as critics say it fails both employees and employers

by Ishshah Padilla | Friday, December 8, 2023

FRESNO, Calif. – Enacted in 2004, the California Private Attorneys General Act (PAGA) was initially designed to assist workers in settling labor disputes. However, nearly two decades later, many say that the system is long overdue for reform.

Fix PAGA, a coalition formed from various state organizations, including the California Chamber of Commerce, says PAGA’s lawsuit-first approach does not give workers the rightful restitution and is a threat to thousands of businesses in California.

According to the PAGA statute, this allows employees to act as “private attorneys general” and go after civil penalties for themselves and/or others on behalf of the state.

The problem here is that filing a PAGA lawsuit tends to leave employees with pennies on the dollar, while the plaintiff lawyers walk away with millions, says the coalition.

Under the statute, 75% of the penalties recovered end up going to the state. The “aggrieved employees” who filed the lawsuit then share the remaining 25%– but let’s not forget about a third (about 33% or more) of that amount goes to the lawyers.

The average payment a worker receives is $1,300 from a PAGA lawsuit, while in a state-decided case through the Labor and Workforce Development Agency (LWDA) a worker can receive nearly $4,000, Fix PAGA states.

According to the California Business and Industrial Alliance (CABIA), in 2018, Walmart agreed to pay $65 million in a PAGA settlement, attorneys received $21 million and the employees (cashiers) who filed the lawsuit received $108 each.

Uber, that same year settled on a $7.75 million in civil penalties that covered 1.5 million drivers. According to court documents, the state took $3.6 million, the attorney pocketed $2.3 million, and the drivers took home $1.08 each.

One group that defends PAGA is the Consumer Attorneys of California (CAOC), who say the legislation was created to fill in the gaps that labor enforcement agencies could not keep up with the growing Labor Code violations occurring in workplaces.

Fix PAGA argues that there is already an existing administrative process that fulfills the claims in a more streamlined and fairer way. LWDA has shown a tendency to resolve labor disputes in half the time compared to PAGA, ensuring that a greater portion of the funds goes directly to the workers rather than being allocated to attorneys.

Now you may be wondering why the state also seems to benefit largely from a PAGA lawsuit. Based on information provided by the Legislative Analyst’s Office, the state’s portion of the civil penalties recovered go to the Labor and Workforce Development Fund (LWDF), which they say it is used for enforcement of labor laws and to educate employees and employers on existing Labor Code.

According to Fresno-based employment defense attorney, Ian Wieland, managing partner of Sagaser, Watkins & Wieland PC, “The plaintiff’s attorneys often structure PAGA settlements so that a very minimal amount is allocated towards the PAGA claim that must be distributed to the state and the employees.  Thus, not only are the employees not benefiting from PAGA, but the state of California is not receiving its fair share of PAGA settlements.  Unfortunately, despite being advertised as a law to protect employees, the only individuals making serious money off PAGA is the plaintiff’s bar that files these cases. It’s an unfair plague and burden on California businesses and our local economies.”

Amanda Divine, CEO of Kings View, a nonprofit behavioral health clinic and IT company in Fresno says nonprofits are no exception to this ‘shameless scam.’

Divine says Kings View was forced to settle on a PAGA lawsuit in 2020 after several “aggrieved employees” filed the lawsuit after they were let go due to a reasonable cause.

The lawsuit’s first ask was millions, an amount a nonprofit does not have, said Michael Kosareff, CFO of Kings View.

“It was like a home invasion robbery,” said Kosareff in the way PAGA calculates civil penalties.

According to Divine, there is a group of plaintiff lawyers in California who go out of their way to solicit people to find the smallest technicality and errors in a workplace to grab ground to file a potential class-action lawsuit.

Working with Fix PAGA, Kelsey McCauley, Senior Account Executive with Bicker, Castillo, Fairbanks and Spitz says, “Small businesses and nonprofits don’t have the resources to fight these PAGA claims, forcing many to settle.”

The errors could be as small as a spelling error, a typo on a paystub, or a $5 discrepancy.

“That is never our intention to underpay anybody, just like most businesses. There are businesses out there that take advantage of people, and of course we have laws in place because there are bad people. Are they the majority, absolutely not. People who run businesses get into it because they care about a particular service, and they want to treat their employees well because they know it is their greatest resource. We can’t do anything without them,” said Divine.

Computers and people can both make minor mistakes and due to the structure and language of PAGA, it is designed in a way that leaves no room for innocence, stated the CEO.

When confronted with a PAGA lawsuit, the key objective is to avoid entering the court system and instead opt for mitigation to minimize the losses. Kings View was compelled to settle, contending that the claims lacked factual support and were based on hypothetical scenarios.

Divine hopes PAGA is amended and serves as an example that businesses in California also deserve the proper protection on how often employees cheat their employers with false claims.

From 2004 to 2020, CABIA reported 367 available cases in Fresno County through state data. One of the highest numbers on the state map was Los Angeles County with nearly 10,000 available cases.

PAGA impacts all industries, says McCauley. This is why Fix PAGA is offering a solution for all parties involved.

The coalition says the legislative fixes should prioritize the following:

  • Faster resolutions for workers.
  • Ensure more money goes to workers.
  • Tougher penalties for businesses that purposely violate labor laws.
  • Eliminate the need for costly and abusive lawsuits.

“California’s Private Attorneys General Act (PAGA) is broken,” said CalChamber President and CEO Jennifer Barrera. “Under the lawsuit-first system, workers receive pennies on the dollar from claims that take years to resolve. PAGA is also unfair to small businesses, non-profits, and other employers who have become major targets of predatory lawsuits. The State Legislature should reform PAGA to create a better, fairer system for workers and businesses.”

As outlined by the coalition, the proposed reform is not aimed at discouraging workers from reporting genuinely serious violations that require attention. Instead, its purpose is to modify the intricate details embedded within the legislation.

Fix PAGA, is looking for employers who have experienced this specific lawsuit and are open to sharing their experiences regarding the impacts it had on their businesses. Employers are encouraged to follow the link here and fill out a short survey.

“Every story, big or small, is crucial,” says Cal Chamber

For those looking to get involved in the coalition to help amplify the need for reform, they can contact Kelsey McCauley at kmccauley@bcfspa.com.