Restaurants are often the target of frivolous lawsuits under the General Attorneys General Act. Photo by Chris Stone
Widespread vaccinations are putting the COVID-19 pandemic in the rearview mirror. Now is the time for California lawmakers to focus on helping the state’s troubled economy recover.
Data from the Bureau of Labor Statistics shows California has the second highest unemployment rate in the country. Around 20,000 state-owned companies have closed permanently.
New research by my organization, the California Business and Industrial Alliance, shows an important way to help the state get back on track: reforming California’s Private Attorneys General Act.
PAGA empowers ordinary employees to act as agents of the State Department of Labor so that they can file labor abuse lawsuits against employers and share in the fines or settlement proceeds. In practice, PAGA has become a cash cow for litigation attorneys who file thousands of frivolous lawsuits each year and reap the majority of the revenue.
PAGA claims often relate to violations of California’s 1,100-page Labor Code. Employers who allow their employees to have flexible lunch breaks, for example, are subject to PAGA lawsuits for violating California labor law, which mandates set break times. Employers who provide vacation or performance-related bonuses to their employees could face PAGA entitlements if they do not include those bonuses in the employee’s underlying base wage rate on which overtime pay is calculated.
A recent study by my organization has shown that employees are far worse off when their cases are resolved within the framework of PAGA compared to the state agency for labor and personnel development. In fact, it was found that workers received almost twice as much when their case was handled by the agency, while employers paid fewer fines. That’s because lawyers typically handle a large chunk of PAGA cases, with fees accounting for a third or more of the total recovery of workers.
Another recent analysis provides anecdotal evidence to support these findings. It suggests that PAGA is directly costing Californians their jobs because PAGA-related expenses are forcing employers to cut labor costs.
We compared data on PAGA claims and layoffs data between 2014 and February 2020 and found that more than 100 medium-sized or larger companies with offices in California have laid off a significant number of employees or closed them entirely within 18 months of leaving a PAGA Filing was taken. (Small businesses generally do not need to file layoffs with the state, so this analysis omits the significant impact PAGA had on these low-margin employers.)
Affected employers include Alpine Village, a Bavarian-style restaurant and bar in Torrance that had to close five months after a PAGA application in 2019 and lay off 35 employees. These include Sport Chalet, which closed several locations across Southland in 2016, laying off a total of 330 employees eight months after being hit by a PAGA claim.
Employees have long been PAGA’s biggest victims. In order to fend off PAGA lawsuits, employers need to reduce shift flexibility and office benefits. Employees who used to work through lunch to collect their children from school earlier, for example, now have to follow a standard schedule.
The economy has changed a lot in recent years. Nobody denies the huge impact e-commerce has had on many merchants. But such broader challenges that companies have to face after the pandemic are all the more a reason to deal with additional pressures like PAGA.
California lawmakers should recognize that employees sometimes pay the cost of PAGA claims with their work, and immediately reform that law to eliminate frivolous lawsuits for victimless violations of the state’s complex labor law. Updating this law could help more Californians keep their jobs when they need them most.
The pandemic may be coming to an end, but the plague of job-damaging regulations like PAGA remains.
Tom Manzo is President and Founder of the California Business and Industrial Alliance. He runs a manufacturing company with almost 200 employees.