PAGA—A Noble Idea in Need of Reform

    The Private Attorney Generals Act (PAGA) is a California law that allows individuals to file lawsuits on behalf of the state for violations of labor laws, such as minimum wage, overtime, and meal and rest break requirements. PAGA claims allow employees to recover penalties for labor code violations that would otherwise only be available to state labor agencies. While the aim of PAGA is admirable, the negative impacts of PAGA are many.

    One example is illustrated by the disproportionate fee-splitting structure. Under the law, 75% of the penalties recovered in a PAGA lawsuit go to the state, while the remaining 25% go to the employee who filed the lawsuit and their attorneys. Of this 25%, the vast majority goes to the lawyer through legal fees, incentivizing the attorneys to seek out potential plaintiffs, regardless of whether a genuine injury occurred. This has led to a proliferation of PAGA lawsuits, with many attorneys specializing in PAGA cases, and some employers facing multiple PAGA lawsuits for the same alleged violations. However, in cases where genuine injury occurred, the plaintiff receives the smallest portion of each settlement.

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    According to a report by the California Chamber of Commerce, from 2004 to 2017, PAGA lawsuits resulted in over $50 million in penalties paid to the state and over $550 million in attorneys’ fees.

    However, as discussed above, these cases aren’t in the workers’ best interests. In a PAGA claim pursued by attorneys, the average award paid to the employee is $1,256.38 and the average employer cost is $1,118,777.38. However, when claims are brought via the state labor department, the average award paid to an employee is $5,941 and the average cost to an employer is $789,936.

    Further, PAGA has created a cottage industry of lawsuits whereby lawyers file frivolous claims in order to extract large settlements from employers. As a result, the law has had a chilling effect on businesses, with some employers choosing to settle even meritless claims rather than face the risk of a costly lawsuit.

    To address these concerns, a ballot measure will appear in 2024 that would amend PAGA. Specifically, the measure, known as the California Fair Pay and Employer Accountability Act, would:

    • Resolve workers’ claims faster under the Labor Commissioner
    • Eliminate shakedown lawsuits
    • Avoid prolonged and costly court cases
    • Provide penalty payments to workers, not lawyers or the state

    As a result of its proposed repairs to the current litigation system, the California Fair Pay and Employer Accountability Act will encourage employers to comply with labor laws and reduce the number of frivolous lawsuits.

    In conclusion, while PAGA was intended to protect workers’ rights and ensure that labor laws are enforced, the law’s disproportionate fee-splitting structure and the proliferation of frivolous lawsuits mean that change is needed. The California Fair Pay and Employer Accountability Act of 2024 is our best way to achieve that change.

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