Some San Fernando Valley business operators got together a few years ago to try to do something about a unique California law that can really whack businesses.
They haven’t gotten very far. Well, they have succeeded in bringing more attention to the law, commonly called PAGA. But they have not succeeded in getting the law reversed or reformed.
But lately, instead of emphasizing how the law hurts businesses, they’ve begun doing a good job of pointing out how the law hurts workers. And that may prove to be far more effective, at least in California, where there seems to be little understanding of how a bad business climate hurts workers.
A little background: PAGA stands for Private Attorney General Act, and it deputizes employees to sue their employers for breaches of the state’s labor code. (And it’s a voluminous 1,100-page labor code that’s chock full of specific, granular provisions that can trap businesses.) For example, if a business allows a few employees to work through their lunch break because those workers want to leave early to pick up their kids from school, that business could face a PAGA lawsuit for violating the labor code, which specifies that lunch breaks must be taken on a strict schedule.
Normally in other states, violations of a state’s labor code are the province of the attorney general or various regulatory agencies. But in California, employees can act as their own attorney general (hence the name) and sue a business. If the employees are successful in their lawsuit, they can claim some of the money along with their lawyers and the state.
The disgruntled business operators, who formed a group called the California Business and Industrial Alliance, based in Pacoima, pointed out that the PAGA law encourages lawsuit abuse. Where an attorney general might ignore small violations by a medium-sized company, trial lawyers will encourage employees to sue. Where an attorney general might call for a fine of a few thousand dollars, a PAGA suit might call for a few million dollars. And the companies have to pay the lawyers’ fees.
Encouraged by lawyers, employees have filed PAGA suits by the thousands, far in excess of what state regulators may do. As a result, businesses claim they are feeling beset by PAGA.
But those arguments point out how PAGA is hurting businesses. As a result, those arguments are not gaining much traction in California. Lately however, the CABIA group has been emphasizing how PAGA hurts workers.
That may be a more effective strategy.
For example, CABIA recently pointed out that employers who give their employees holiday or performance-based bonuses could face a PAGA lawsuit if they don’t factor such bonuses into employees’ underlying base rate of pay on which overtime compensation is calculated. Thanks to PAGA, businesses in California are now incentivized not to give bonuses to workers.
And that example about employees who asked to work through their lunch break? The solution is clear: Businesses in California should never grant such leniency to their employees. Businesses should force employees to stick to the state-prescribed break schedule.
Another CABIA analysis suggests the law costs Californians their jobs. The group cross-referenced PAGA claims and state layoff data between 2014 and February 2020 and found that more than 100 mid-sized or larger companies with operations in California laid off a substantial number of employees or closed entirely within 18 months of being hit with a PAGA filing.
“Employees have long been the biggest victims of PAGA,” reads a recent CABIA press release.
Pointing out how PAGA hurts businesses has not been a very effective tactic. Pointing out how it hurts workers may be more so.
Any strategy to get PAGA reform would be a good one. For businesses, for workers and for the state.
Charles Crumpley is editor and publisher of the Business Journal. He can be reached at firstname.lastname@example.org.