California’s PAGA law lets employees act on behalf of the state to pursue labor code violations in civil court. Employers may face steep penalties even for minor infractions, with lawsuits rising sharply since PAGA became law in 2004.
By Brad Nakase, Attorney
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A California legislation known as the PAGA, or Private Attorneys General Act (2004) permits resentful workers to file civil lawsuits against their companies for violations of the California Labor Code on behalf of themselves, other workers, and the State of California.
The goal of PAGA is to enable citizens to uphold the Labor Code and serve as private attorneys general, not to obtain compensation or damages. Disgruntled workers are required to report any suspected Labor Code violations to the LWDA (Labor and Workforce Development Body), the state body responsible for enforcing California labor regulations, as PAGA suits are essentially law enforcement activities. A PAGA lawsuit can only be brought by an irate employee if the LWDA decides not to take legal action against the business on its own.
Enacted in 2003 in response to Senate Bill 796, PAGA became operative on 1at January 2004. The California Legislature enacted PAGA after determining that the state’s labor regulatory staffing levels had decreased over the previous ten years and were not likely to keep up with the expansion of the labor market. The Legislature decided that allowing resentful workers to serve as their own attorneys general and seek civil damages for Labor Code infractions was in the greater public interest.
After the statute was passed, PAGA lawsuits have grown in popularity. Between 2005 & 2013, the number of these lawsuits rose by more than 400%.
Employees are permitted to receive two different kinds of civil penalties under PAGA. The first kind consists of fines for breaking Labor Code provisions that also include civil penalties. The second category consists of sanctions for breaking Labor Code provisions that do not specifically outline the consequences of the infraction.
PAGA mandated that the company have to pay a civil fine of hundred dollars for every harmed employee each pay period for the first time they violate the Labor Code and two hundred dollars for each worker per pay period for any subsequent violation. In a PAGA lawsuit, the LWDA receives 75% of the civil fines recovered, with the remainder 25% going to the “aggrieved workers” who were impacted. Successful PAGA lawsuit plaintiffs are also eligible to receive their legal fees back.
Employees must pay the filing fee and give notification in writing of their assertions to the LWDA prior to bringing a case under PAGA. Within sixty-five days, the LWDA can decide to examine the alleged infractions itself. Employees may file their own PAGA lawsuit if they are informed that the LWDA will not be conducting an investigation or if they do not hear back from the LWDA within 65 days. Employers have a 33-day period to correct certain statute-specified infractions and prevent enforcement action.
Prior to the passage of PAGA, the LWDA had the authority to collect civil fines for Labor Code infractions in certain situations. A criminal charge could also be brought against offenders of certain Labor Code sections by the attorney general of the state along with additional public prosecutors.
In addition, an employee might accuse the Labor Commissioner of violating certain parts of the Labor Code and, if the Commissioner chooses not to pursue legal action, sue the company directly for reinstatement, damages, and other relief. According to the Unfair Competition Law, the Business & Professions Code (Section 17200), individual employees may also file a lawsuit to stop illegal company practices.
To assess how well the DIR (Department of Industrial Relations), a component of the LWDA, enforced wage and hour rules, the Assembly Committee held proceedings in 2001. Evidence presented before the Committee showed that public funds were not keeping up with the state economy’s rapid expansion, even though the DIR is the nation’s biggest state agency for labor law enforcement.
The spending plan for California’s DLSE (Division of Labor Standards Enforcement) increased by just 27% between 1980 & 2000, despite the state’s workforce growing by 48% during that time. California’s Cal/OSHA (Division of Occupational Safety and Health) saw a 14 percent cut in funding during that time. In addition, DLSE and Cal/OSHA had reduced their workforces throughout the previous 20 years.
Evidence suggested that the DIR was not successfully enforcing labor regulations in these circumstances. According to estimates, California’s “hidden economy”—businesses that operate outside of the government’s tax & licensing regulations—is worth between $60 billion and $140 billion yearly, resulting in a three to $6 billion tax loss for the state.
Furthermore, the DIR issued less than one hundred wage citations annually for all sectors in the state, despite a United States Department of Labor study estimating that the garment sector in Los Angeles, which employed more than 100,000 workers, had over 33,000 significant and continuing wage violations. Furthermore, because the district attorneys preferred to focus their resources on serious crimes along with other public priorities, infractions of several Labor Code sections were rarely prosecuted, even though they were penalized merely by criminal misdemeanor.
The California Legislature introduced SB 796, also known as the Labor Code PAGA (Private Attorneys General Act) of 2004, in response to the state’s fiscal deficit, growing labor force, and inadequate labor law enforcement capacity. In order to enable resentful workers to act as their own attorneys general and pursue civil penalties against companies who violate the Labor Code, lawmakers proposed SB 796.
Supporters of SB 796, including its cosponsors the California Rural Legal Assistance Foundation and the California Labor Federation, claimed that the state’s harsh budget deficit, the expansion of the black market, and the lack of personnel in labor law enforcement necessitated an innovative approach to effectively combat labor law infractions.
Business groups such as the California Chamber of Commerce opposed the bill, arguing that it would incite private lawyers to “behave as vigilantes” and drive small businesses into paying settlements for minor violations. Additionally, opponents contended that the bill’s exclusion of prevailing employers’ legal fees, administrative exhaustion requirements, and prosecutorial discretion would encourage aggressive litigation and put an undue burden on companies.
SB 796 was approved by the California State Assembly on 11th Sep 2003, with a margin of just one vote more than that needed to pass a standard measure. The bill was approved by the California State Senate with the bare minimum of votes required. On 12th Oct 2003, Gray Davis (Governor) signed the legislation, and on 1st January 2004, it became operative.
1. SB 1809
Opponents made an unsuccessful attempt to overturn PAGA as soon as it was passed. Senate Bill 1809, which California Governor Arnold Schwarzenegger signed into legislation on 11th August 2004, changed the provisions of PAGA shortly after it was passed. SB 1809, which was introduced following a deal between the state, corporations, and labor representatives, was designed to provide companies a chance to correct minor labor code infractions and steer clear of “shakedown litigation.”
Before bringing a PAGA lawsuit action, SB 1809 mandates that resentful workers complete a number of procedural steps, such as giving written notification to the company and the LWDA. SB 1809 incorporated PAGA’s provisions that the employer be given the chance to correct specific Labor Code breaches and that resentful employees may only bring an individual lawsuit if the LWDA chooses not to take its own action.
Additionally, SB 1809: (1) allows courts to grant a lower civil punishment than the statute’s maximum; (2) mandates that courts examine and approve any settlement arrangement for PAGA lawsuit claims; and (3) does away with PAGA recovery centered on an employer’s failure to comply with the majority of Labor Code notice and posting requirements.
2. Recent changes to PAGA
Before resentful workers may file a PAGA lawsuit, employers have the chance to correct a wage statement’s omission of the time of performance, the company’s name, and address, according to AB 1506, which was passed in 2015. Noting a sharp rise in PAGA litigation between 2005 and 2013, the bill’s supporters contended that it would enable businesses to correct frequently inadvertent mistakes without fear of a costly legal battle.
Due to a shortage of funding, the LWDA was only reviewing or looking into just under one percent of PAGA cases in 2016, according to Gov. Jerry Brown’s budget request. In 2016, SB 836 was passed by the Legislature to expand the LWDA’s authority to enforce labor law infractions. SB 836 mandates that all materials filed to the LWDA be filed online and that new case notices be filed with a $75 file fee. Additionally, the bill mandates that the LWDA be notified of any proposed settlements & court rulings. Lastly, the law increases the amount of time the LWDA has to examine new cases and inform parties that it intends to look into infractions.
Additionally, the Legislature established unique PAGA lawsuit provisions tailored to particular industries. AB 1654, approved by the Legislature in 2018, exempts PAGA workers in the construction sector from paying for services done within a collective bargaining contract that satisfies certain legal standards. Employees in the cleaning sector are also exempt under SB 646, which was passed in 2021, provided that their collective bargaining agreement satisfies certain legal standards.
1. Reach expansion for PAGA
The right of employees to pursue PAGA cases has been safeguarded by a number of California court rulings since the law’s passage.
The California Supreme Court broadened the scope of PAGA in 2009’s Arias vs. Superior Court, ruling that a plaintiff can bring a representative PAGA lawsuit without meeting the higher requirements needed for a conventional class action. In this instance, an employee filed a PAGA lawsuit against his employer for many Labor Code breaches on behalf of both himself and other employees.
A plaintiff does not have to meet class action standards in order to file a PAGA representative action, according to the lower court of appeals. The Supreme Court of California upheld the decision, ruling that the absence of class action obligations in PAGA cases did not conflict with the legislative purpose or infringe upon the right to proper process of the defendants.
The 6th District Court of Appeal in California ruled in Huff vs. Securitas Security Services (2018) that workers who have been subjected to one Labor Code violation may pursue PAGA fines for additional Labor Code infractions that did not directly harm them. The court held that restricting PAGA plaintiffs’ ability to seek penalties for all infractions would go against the legislative intention, as the goal of PAGA is to maximize fulfillment of labor laws while addressing the issue of insufficient state enforcement.
The California Supreme Court determined in Kim vs. Reins International (2020) that an employee who reached a settlement for his own wage & hour claims still had the right to pursue a PAGA lawsuit. The plaintiff must be an “aggrieved worker” who served for the asserted violator, and the employer must have committed any or all of the alleged breaches against the complainant. The court found that PAGA’s language only requires these two elements for standing. The plaintiff retained PAGA standing since he continued to meet those two standards.
California’s 4th District Court of Appeal ruled in Johnson vs. Maxim Healthcare Services (2021) that a worker could still file a representative PAGA lawsuit even if their individual claim was time-barred. The court concluded that “the reality that Johnson’s personal claim might be time-barred does not negate the alleged Labor Code breaches nor rob Johnson of her capacity to seek PAGA remedies,” referencing the Supreme Court’s rationale in Kim on PAGA’s standing criteria.
The broad interpretation of PAGA by California courts has been contested by a number of federal courts. The United States Court of Appeals for the 9th Circuit, for example, deviated from Huff’s decision in Magadia vs. Wal-Mart Associates (2021), concluding that a worker lacked footing to file a PAGA case in a federal court regarding a Labor Code violation that he had not directly experienced.
Furthermore, the United States District Court (Eastern District of California) rejected the California Supreme Court’s conclusion in Arias in Medlock vs. Taco Bell (2014), concluding that a representative PAGA action was required to satisfy class certification standards.
2. Handling PAGA claims
Regarding whether courts can reject PAGA claims on the grounds of manageability, the California Court of Appeals is currently divided. California’s Second District Court of Appeal ruled in Wesson vs. Staples the Office Superstore (2021) that “courts possess inherent jurisdiction to guarantee that PAGA claims will be fairly and effectively handled and, if required, can dismiss claims that aren’t made manageable.”
The court held that because PAGA cases can include a large number of workers with varying experiences relevant to the alleged infractions, they could pose manageability difficulties that are comparable to or more significant than those of other represented claims.
In Estrada vs. Royalty Carpet Mills (2022), California’s 4th District Court of Appeal reached a different judgment, concluding that a court cannot reject a PAGA claim on the grounds of manageability. The court concluded that allowing a judge to drop a PAGA action because it is manageable would put PAGA claimants through an additional burden and impose a class action prerequisite on PAGA actions, undermining the law compliance mechanism’s intent.
On 22nd June 2022, the Supreme Court approved the Estrada defendant’s request for review in order to ascertain if trial courts are naturally empowered to reject PAGA claims that they deem unmanageable.
3. Revocation of the right to file a PAGA action
Companies usually have the authority to ask workers to sign contracts of arbitration that prohibit them from filing arbitrations or class action lawsuits. The Supreme Court (California) ruled in Iskanian vs. CLS Transportation (2014) that arbitration contracts that require an employee to forfeit their right to file a representative PAGA suit are invalid.
After signing an arbitration contract that relinquished his right to file a class action lawsuit, the complainant in Iskanian attempted to use PAGA to file a representative action. The court determined that waiving the right to file a PAGA claim is prohibited by California public policy since PAGA proceedings are public enforcement activities. The FAA (Federal Arbitration Act), which allows for the judicial resolution of private issues through arbitration, did not supersede the prohibition on PAGA waivers, the court further found. PAGA cases are issues between a business and the LWDA, a state body, the court reasoned, while the FAA handles private issues.
The US Supreme Court’s ruling in Viking River Cruises vs. Moriana in 2022 called into question Iskanian’s holding. On behalf of both herself and other workers, the plaintiff in Viking River Cruises claimed a number of Labor Code infractions. The defendant sought to dismiss the remainder of the representative PAGA claims and to enforce arbitration of the claimant’s personal PAGA claims, which were the infractions that the plaintiff experienced personally because the complainant had signed a class action waiver and arbitration agreement.
In his decision, Justice Alito ruled that the FAA takes precedence over the Iskanian rule that forbids the separation of PAGA proceedings into individual & representative cases through arbitration contracts. The defendant was able to enforce arbitration of the complainant’s individual PAGA claims in accordance with this decision.
The plaintiff also did not have standing to uphold her other representative claims because her personal claims were stripped away from the lawsuit. A plaintiff’s ability to file a representative action may be eliminated if employers force arbitration of their individual PAGA claims in accordance with the Court’s ruling in Viking River Cruises.
California business groups have opposed PAGA since it was passed, claiming that it fails to safeguard workers and overburdens employers. For instance, a 2021 report supported by the California Business & Industrial Alliance contended that businesses pay greater fines in PAGA cases that are challenged in court, even while workers receive larger judgments in cases handled by the LWDA. Business associations contend that the costs that plaintiffs’ attorneys are entitled to receive in PAGA court cases are the cause of this disparity.
A ballot effort called the California FPEAA (Fair Pay & Employer Accountability Act), which would repeal PAGA, is being sponsored by a number of California industry groupings in response to these critiques. FPEAA would give the Labor Commissioner exclusive jurisdiction to impose civil damages for Labor Code infractions, doing away with employees’ right to bring their own cases to uphold the Labor Code.
In contrast to PAGA, which gives resentful employees a quarter of the fines imposed, every penalty would be paid to the employees. Additionally, FPEAA would authorize higher fines for deliberate offenses, pay the Labor Commissioner to guarantee proper enforcement, and mandate that the Labor Commissioner contact employers prior to enforcement.
The drafters of FPEAA argue that the revised statutory framework will give employees full penalties without requiring them to file a legal action or engage an attorney, citing “backlogged courts” and excessive attorneys’ fees as justifications for repealing PAGA. However, PAGA’s supporters contend that PAGA has safeguarded workers from pay theft, significantly increased Labor Code compliance, and supplied vital funds for labor enforcement via civil fines. Furthermore, opponents of FPEAA contend that eliminating PAGA’s multi-plaintiff damages and fees for attorneys will allow employers to violate the Labor Code with no repercussions.
The Secretary of State (California) declared on 22nd July 2022, that FPEAA is now eligible to be on the ballot for the general election in November 2024.
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