[Source: Orange County Register] There’s growing recognition among California’s small businesses, nonprofits, and legislators that the state’s Private Attorneys General Act (PAGA), which deputizes employees and trial lawyers to enforce state labor law, must be reformed to curtail widespread abusive lawsuits. Over the last 15 years, more than 35,000 PAGA notices have been sent to employers, often for good faith or technical abridgments of arcane provisions in the state’s 1,100-page labor code.
A new report co-released by the UCLA Labor Center, the Center for Popular Democracy, and the Partnership for Working Families defends PAGA by pointing to the record $88 million in fees the state earned from the law in 2019 — nearly triple the 2018 haul.
But the expansion of a bad law is not proof of its success. If anything, it provides more ammunition for reform efforts.
Here’s a typical PAGA scenario: A recently-fired employee approaches a lawyer to inquire about a wrongful termination claim. The lawyer asks to see the employee’s pay stub and finds some clerical mistake such as an error in the workplace address. The oversight is technically a violation of the state’s labor code, and the lawyer can proceed with a PAGA complaint against the employer with access to all company employees’ contact information. The lawyer can then seek relief not just for the actual client, but also for every other employee at the business regardless of whether any individual actually suffered harm.
The state dictates a penalty for each typo on a paycheck. Under PAGA, these penalties are aggregated across pay period and across every employee for a combined financial exposure that may be in the millions of dollars. This information is sent to the employer in what I would charitably describe as a “threat” letter. (Others have called it an “extortion letter.”) The demand is simple: Settle with us, and quickly, or you face fines that will likely put you out of business.
How large can these fines be? Last summer, Walmart was hit with a $102 million verdict after fighting a PAGA complaint regarding wage statements that failed to detail overtime calculations. The decision is currently on appeal, but this case alone is evidence why small employers settle out of court rather than risk a crippling judgment.
This financial motivation gets to the fundamental problem with PAGA. Under the statute, plaintiffs’ lawyers have a personal financial stake in the outcome of the case, in the way a public law enforcement officer or agency official never would.
Victims of PAGA lawsuits include the AIDS Foundation, the Children’s Homes of Los Angeles, the Humane Society, and countless small businesses. Were the state rather than private lawyers enforcing a minor violation of the law, both sides would have an interest in reaching a reasonable remedy that didn’t harm the charity or entrepreneur. But under PAGA there is no obligation for the lawyers to act in the public’s interest, and in fact lawyers are ethically-bound to pursue the maximum financial recovery for their clients (and likewise themselves).
In late 2016, a mid-size manufacturing company north of Los Angeles, Timely Industries, was hit with a PAGA complaint. The company’s President, Tom Manzo, was so outraged by the law that he founded the California Business and Industrial Alliance and sued the state to fix PAGA. CABIA’s complaint is filed on behalf of Tom and dozens of his members, all of whom are victims of PAGA. The lawsuit is progressing through California’s state court system, but if California courts don’t overturn PAGA, this issue may wind up before the US Supreme Court.
PAGA is a monster otherwise unknown in Anglo-American jurisprudence. In more than two decades of practicing law, I have never seen a statute that so clearly deprives employers of their due process. If the state legislature won’t right this wrong, it’s my hope that the courts will. In contrast to proponents’ claims, PAGA’s growth is just further proof it must be curtailed.
Source: Orange County Register / Paul Decamp
March 12, 2020
