This November, California voters may have the opportunity to replace the controversial Labor Code Private Attorneys General Act (“PAGA”) by voting on a proposed bill that would double penalties for willful labor-law violators, but would eliminate employees’ ability to file private lawsuits on behalf of the state and leave enforcement solely to a state agency.
The proposed bill, the California Employee Civil Action Law Initiative, is backed by a collection of businesses across the state and has qualified for the November 5 state ballot after receiving more than 700,000 signatures in its support.
While many Californians have never heard of PAGA, employers are acutely aware of the role it has played in employment litigation since its enactment in 2004. PAGA permits “aggrieved” employees to file private lawsuits on behalf of California’s Labor and Workforce Development Agency (“LWDA”), because the LWDA initially lacked the resources to pursue the violations on its own. PAGA also provides an incentive for plaintiff’s attorneys to pursue claims on behalf of aggrieved employees because successful attorneys are entitled to recover their fees. Given the complexities of California wage and hour laws, PAGA has been a massive thorn in the side of employers, causing countless high-stakes lawsuits.
Currently, PAGA allocates 75 percent of recovered monetary penalties for state labor law violations to the LWDA, which earmarks the funds for labor law enforcement and education. Additionally, PAGA permits plaintiffs’ attorneys to recover fees, which are subject to court approval and typically constitute approximately 33 percent of the total settlement, not just the 25 percent that goes to workers. Thus, PAGA litigation in California is largely driven by plaintiffs' lawyers’ fees, as the plaintiffs’ bar is tasked with enforcing the LWDA’s provisions.
If passed, the California Employee Civil Action Law Initiative would dramatically alter the division of PAGA penalties by providing 100 percent of the penalties directly to the aggrieved employees. The bill would also be a huge detriment to plaintiffs’ attorneys as they would no longer be permitted to file lawsuits on behalf of aggrieved employees.
Critics of the bill argue that eliminating workers’ ability to pursue private lawsuits would leave them more vulnerable to wage theft and other labor law violations. Critics also claim the bill’s provision, which requires California’s Division of Labor Standards Enforcement (“DLSE”) be a party to all labor complaints, would limit enforcement under the proposed legislation.
However, the DLSE now has more resources as compared to when PAGA was first enacted due, in part, to millions of dollars of PAGA settlements in recent years. Thus, the agency can utilize its additional resources to adjust its approach to enforcement of California Labor laws. Moreover, the proposed bill would require that any labor violation be willful, thereby requiring the state to go after blatant labor law violators, and likely eliminating frustrating PAGA lawsuits over technicalities in paystubs or other minor violations. By eliminating attorney’s fees and requiring that violations be willful, but doubling penalties, the bill seemingly seeks to strike a balance between protection for workers and practicality for employers.
Given the high stakes involved, proponents of the measure, opponents of the measure, and the legislature are in the early stages of negotiations to try and reach a deal to pass a bill making changes to PAGA in exchange for pulling the repeal measure off the ballot. A deal would have to materialize before the June 27 deadline to withdraw measures from the November ballot. California employers will be closely watching the negotiations given the significant potential impact of the California Employee Civil Action Law Initiative.
