Stemming the Tide of PAGA Litigation: An Ongoing Battle for California Businesses

This provision has become the most prolific source of employment litigation in California
If there is one acronym that should strike fear of anyone doing business in the state of California in 2020 it is PAGA.
By Lisa Ryan & Barb Cotter of Cook Brown, LLP, Sep 11, 2020

The California Private Attorney General Act, or PAGA, allows private citizens to sue for civil fines and penalties for violations of certain California Labor Code provisions and has become the most prolific source of employment litigation in the state.  Prior to passage of what has been dubbed the “Sue Your Boss” law, such lawsuits could only be brought a State agency such as the Labor Commissioner or the Attorney General. While this law was enacted in 2004, it took several years for employees (and their attorneys) to truly figure out how they wanted to use PAGA to sue employers. Since under PAGA the employee is permitted to seek civil penalties for violations not only that he or she suffered, but also violations suffered by other current and former employees, employees have used PAGA as a way to seek settlement for arguably minor violations of the law that when amassed over multiple pay periods for an entire workforce would result in a potential massive penalty.

The California Supreme Court also held that an aggrieved employee who brings a representative action under PAGA may recover civil penalties without satisfying more onerous class action certification requirements. Thus, employers have seen an increase in PAGA representative actions, whereby a single plaintiff seeks to bring an action on behalf of other “aggrieved employees” in California courts without the hassle of satisfying all of the requirements of pursuing a class action complaint.

Even worse for employers, California courts have further expanded the reach of these claims by authorizing a single employee’s attorney to seek contact information for all aggrieved employees, without even proving those employees suffered any harm. Since it is relatively easy to find a technical violation of an employer’s written policies or practices and plaintiffs’ attorneys stand to make hundreds of thousands of dollars on a single PAGA claim, there is a dramatic rise in the number of attorneys focusing almost exclusively on PAGA claims.

A trade association, the California Business & Industrial Alliance (“CABIA”), has attempted to fight back against the dramatic rise in such litigation by filing lawsuit against California, claiming PAGA violates employers’ constitutional rights on various grounds. It argued that PAGA’s potentially crippling penalties and litigation costs unlawfully compel even law-abiding employers to settle. While CABIA supporters were hoping due process challenges would help stem the tide of PAGA lawsuits, there currently appears no end in sight.

Minimize the Threat of PAGA Claims

As judicial challenges to PAGA on constitutional grounds remain an uphill battle, and imminent legislative reform of PAGA is unlikely, employers should make every effort to minimize the threat of PAGA claims. Such steps include careful monitoring of workplace practices–both formal policies and informal practices. PAGA litigation continues to increase in light of the potential to collect lucrative fees and penalties. Employers cannot compel arbitration of PAGA claims or require employees to waive the right to assert a PAGA claim. The most common PAGA claims include:

  • Regular Rate Calculation Mistakes. A non-exempt employee’s overtime rate is not simply 1.5 times the base hourly rate but must include most forms of compensation. Non-discretionary and even small flat rate bonuses must be calculated into the regular rate for overtime purposes. Failure to add such compensation may result in a very small amount for overtime purposes, but penalties on such a mistake can be devastating.
  • Working Off the Clock Allegations. Employees must be paid for all time suffered or permitted to work. Recent California case law has eroded the de minimis argument for employers. Thus, the minutes before or after an employee can clock-in, walking to work stations, starting computers, donning PPE, etc. may give rise to an unpaid time claim.
  • Meal & Rest Period Violations. Did you know that if an employee is not provided a meal period before the end of the fifth hour worked, you must pay that employee an extra one hour penalty, regardless of whether the employee ultimately took the meal period. Additionally, if an employee is interrupted during a paid rest break or unpaid meal period, that could trigger a penalty. Employees who often work in the field, such as in construction and service industries, regularly make such claims.
  • Wage Statement Violations. Cal Labor Code section 226 specifies nine items that must be set forth on a wage statement. Most of these requirements are straight forward but common issues can include hourly rates of pay for all forms of compensation, including regular rate calculations, as set forth above, and paid sick leave balances.

While legal challenges to PAGA continue pending, California employers are advised to take effective measures to prevent and defend potential PAGA suits. Employers should audit their wage statements, timekeeping practices, payroll records, and rest and meal break policies to ensure they are in compliance with applicable labor laws and regulations.

By Lisa Ryan & Barb Cotter, Cook Brown, LLP

This article is intended for educational purposes only and is not a substitute for obtaining competent accounting, tax, legal, or financial advice from a certified public accountant, attorney, or other business advisors.  You should not act upon any of the information in this article without first seeking qualified professional guidance from your business advisors on your specific circumstances. The information presented should not be construed as advice or guidance from BFBA.