The state Supreme Court’s ruling last month that PAGA (Private Attorneys General Act) claims can proceed even if the underlying claim has been settled has raised concerns in the business community that it could lead to more expensive litigation.
The law allows suits against employers on behalf of workers for alleged infractions of California labor laws. When the plaintiffs prevail, the employee keeps a quarter of the award and three-quarters goes to the state’s Labor and Workforce Development Agency. The fees awarded to the plaintiff lawyers, which are calculated based on the full award amount, has led to criticism that too many frivolous suits are being filed because plaintiff lawyers are incentivized.
“PAGA has been causing employers difficulties for quite some time,” Kelly Gemelli, a principal with the Jackson Lewis law firm in San Diego, told the Northern California Record. “There’s a lot of unknowns about PAGA and now we know – the Supreme Court answered – yes, the employee is still able to bring a PAGA claim even if he or she settles the underlying claim.”
“Prior to this, it was thought the cases were settled with the 998 [settlement] offer,” Gemelli said, “Now we have confirmation from the Supreme Court that even if you settle, the employee can still seek penalties under PAGA as well,” Gemelli said.
Justin Kim, the plaintiff in the case before the Supreme Court, sued his employer, Reins International California, over wage and hour discrepancy. After settling the case, he sought civil penalties under PAGA.
“Yes, unfortunately for employers, PAGA claims cannot be compelled to arbitration,” Gemelli said. “But with this ruling, we’ve opened the possibility that PAGA claims can be released by a 998 offer. Employers need to make sure PAGA claims are released as part of a 998 offer.”
Jennifer Kramer, an employee rights attorney and board member for the California Employment Lawyers Association, told the Record that the Supreme Court’s decision gives more teeth to the PAGA law.
In its September 2019 decision in ZB, N.A. v. Superior Court (Lawson), the Supreme Court ruled that plaintiffs cannot recover back wages as well civil penalties, which was viewed as a victory for businesses.
“The bigger picture here is the Supreme Court is emphasizing PAGA claims are about state interest in fixing past violations and deterring future violations,” Kramer said.
Kramer pointed to a UCLA study released in February that analyzed PAGA; it notes that the state in 2019 collected $88 million in PAGA penalties.
As to criticism the law has become a target for frivolous litigation, Kramer said the UCLA study found the vast majority are not.
"PAGA is one more tool for going after wage theft,” Kramer said. “You always have the option of filing a case with the California Labor Commissioner, you can always do that and be represented by the state in that process.”
Most plaintiffs choose to be represented by private counsel.
And, as a relatively novel statute, PAGA continues to spark controversy.
“California is still the only state with this particular law and businesses are leaving because of it,” Tom Manzo, founder and president of the California Business and Industrial Alliance (CABIA), told the Record. “PAGA is a transfer of wealth to the trial attorneys, it’s not going to the employees, you can’t compare it to any other law.”
PAGA has impacted small businesses the most, he added.
“Can you imagine if a restaurant gets one of these PAGA notices right now and they have no employees, how are they going to survive?
CABIA, which tracks the number of PAGA claims, says more than 300 PAGA notices have been issued in the past few weeks, many against health care facilities.
“We’re going to keep pressing for changes,” Manzo said. “Somebody has got to raise their hand and say enough is enough.”