Employers with operations both large and small in California are all too familiar with California’s Private Attorneys General Act (“PAGA”), the controversial statute that permits a single employee to stand in the shoes of the state’s attorney general and file suit on behalf of other employees to seek to recover penalties for alleged Labor Code violations.
The in terrorem effect of PAGA lawsuits, in which a plaintiff need not satisfy class certification criteria to represent an entire workforce, has led many employers to pay large settlements just to avoid legal fees and the possibility of larger awards, even when the evidence of unlawful conduct is spotty or entirely absent.
Will 2022 be the year that PAGA is repealed?
And maybe not.
It appears the fate of the much-maligned statute could be left in the hands of California voters if a proposed ballot initiative makes its way onto the next ballot.
The proposed ballot initiative effectively seeks to repeal PAGA and replace it with a new law called Fair Pay and Employer Accountability Act of 2022.
The Fair Pay and Employer Accountability Act of 2022 would provide a streamlined process to address claims – and larger potential recoveries for employees in the event they are treated unlawfully. Among other things, employees would receive 100% of any recovery, rather than just 25% under PAGA.
Who would be largely cut out of the process? The plaintiffs’ bar, which has benefited more than anyone from the statute -- and which is likely to fight the ballot initiative tooth and nail should it in fact end up before California voters.
When the Private Attorneys General Act went into effect back in 2004, it was commonly referred to as “the Bounty Hunter law.” That’s what employment lawyers called it. That’s what the press called it.
Over time, lawyers and the media began to refer to it instead by its acronym – “PAGA” – not because the original nickname was inaccurate, but out of convenience, if nothing else.
As history has proved, however, the original “Bounty Hunter” sobriquet was an accurate one. Some plaintiffs’ firms have filed hundreds of nearly identical PAGA lawsuits against employers across the state, accusing them in the same vague terms of not paying for all time worked, not providing compliant meal and rest period, and not providing accurate wage statements.
With the threat of potentially huge penalties driving large, early settlements from many employers, PAGA has proved to be a cash cow for the plaintiffs’ bar – but not so much for the employees they purportedly represent in these cases.
In the typical PAGA settlement, plaintiff’s counsel negotiate up to 40% of the total settlement amount for themselves, often for doing little more than filing a boilerplate complaint and attending a mediation. The remaining 60% of the settlement is divided between the state Labor and Workforce Development Agency (“LWDA”) (which receives 75% under PAGA) and the purportedly aggrieved employees (25%).
In other words, the typical PAGA settlement is apportioned as follows:
40% - plaintiff’s counsel
45% - LWDA
15% - employees
For illustrative purposes, assume a PAGA action involving 5,000 employees settles at the outset of the case for $1,000,000. Here is how the settlement would typically be divided:
$400,000 – plaintiff’s counsel
$450,000 – LWDA
$150,000 – employees
The attorneys would receive up to $400,000 for filing suit and attending a mediation, and each of the 5,000 employees would receive $30 – a miniscule percentage of the attorneys’ recovery.
The Fair Pay and Employer Accountability Act of 2022 is designed to correct that imbalance, while exposing employers to more damages if they willfully violate the law.
But whether California voters will even be asked to consider the initiative is questionable. To get on the ballot, more than 620,000 voters must first sign a petition backing the initiative, which is by no means certain to occur. Many proposed initiatives, including those aimed at amending PAGA, have fallen short of meeting the threshold to be placed before voters.
Assuming the initiative reaches California voters, it seems it would have a very different path to being passed by voters.
The plaintiffs’ bar is likely to campaign heavily against the initiative, attempting to convince voters that the larger potential recoveries for employees are somehow not in the employees’ best interests. And the plaintiffs’ bar has plenty of money in its coffers from all of those PAGA settlements to use to fight efforts to repeal PAGA.