This month’s experts are
Kurt Franklin and Jaime Gher, both with the San Francisco office of the law
firm of Hanson, Bridgett, Marcus, Vlahos & Rudy LLP.
On January 1, 2004, the
Labor Code Private Attorneys General Act (PAGA), otherwise known as the “Sue
Your Boss” law, went into effect. PAGA gave employees the right to directly sue
their employers for any violation of the Labor Code instead of having to file a
claim with the Labor Commissioner first. Under PAGA, employees could now
collect penalties, attorney’s fees, and costs by directly suing their
employers— even for technical violations of the Labor Code.
Although the state has
no figures on how many PAGA lawsuits have been filed over the last 21/2 years, anecdotal reports
indicate the number is substantial. We take stock of this law now, explaining
its history, the problems that have arisen, and how you can best avoid being
sued under it.
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PAGA’s Background
Historically, the
Division of Labor Standards Enforcement (DLSE) and the Labor and Workforce Development
Agency (LWDA)—the umbrella agency for
workforce-related departments— enforced Labor Code violations. But because of a
lack of resources and staff, enforcement dwindled. PAGA was created to supplement
the government’s enforcement efforts by allowing employees to act as “private attorneys
general.” It was also intended to generate revenue for the LWDA by allocating
75 percent of the penalties recovered to that agency.
But PAGA also had
unintended benefits for another sector: lawyers who represent employees began
earning high fees. Almost immediately after PAGA went into effect, employees
and their lawyers sought huge penalties from employers for trivial and
technical Labor Code violations. For example, one California employer was sued
for more than $170 million for allegedly failing to post required workplace
posters and for not submitting its employment applications to the state—even
though the employees suffered no economic harm.
Governor Pushes PAGA Reform
In response to business
outcry and at Governor Schwarzenegger’s insistence, the legislature amended PAGA
later in 2004 to lessen its harsh effect on employers and rein in such
lawsuits. The amended statute now prohibits employees from bringing PAGA claims
for Labor Code violations such as postings, notices, agency reporting, or
filing requirements. It also contains a number of safeguards to eliminate
frivolous suits and better regulate employee claims:
1. Employees must submit
notices of intent to sue to the LWDA, giving the agency the “right of first refusal”
to investigate claims.
2. Employers are granted
time to “cure” certain violations before facing liability.
3. A court must approve
a settlement of a PAGA claim.
4. Courts have
discretion to reduce penalties.
PAGA Litigation
Continues
Unfortunately, however,
the 2004 amendments have had little effect, and PAGA lawsuits are still common.
Why? One reason, according to reports from the field, is that the LWDA remains
understaffed and rarely exercises the “right of first refusal” to investigate
cases. Another is that PAGA still allows employees to sue for more than 140
Labor Code provisions, such as Labor Code sections 201 (wages due on
discharge), 203 (waiting time penalties for paying wages late on discharge),
226 (itemized wage statements), 226.7 (mandated meal and rest periods), 510
(overtime), 1174 (duty to maintain employment records), 1197 (minimum wages),
1198 (maximum hours worked), and 2892 (indemnification for employee expenses in
discharging duties).
Yet another problem is
that while the number of lawsuits continues to grow, PAGA provides no guidance regarding
the LWDA’s collection of its share of penalties. PAGA requires employees to
notify the LWDA of their intent to file a suit, but a subsequent notice is not
required to inform the agency if and when they actually file it. Conversely,
the LWDA reportedly has no system in place to track filed claims and the
related penalty awards. Instead, it relies on employees and their lawyers to
voluntarily inform them of the revenue-generating penalties. This rarely
happens. In fact, since 2004, the LWDA has only collected approximately
$121,000 in penalties. Clearly, PAGA is not generating revenue for the LWDA as
planned.
What Should Employers
Do?
As long as the LWDA
remains detached from the investigation and claims process, the number of employee-initiated
lawsuits filed under PAGA will remain high. Employees have every incentive to
file PAGA lawsuits with the hope for attorney’s fees and penalty recovery that
are grossly disproportionate to actual damages.
In response to this
growing exposure to employee-initiated lawsuits,
preventing Labor Code violations. Besides reviewing current practices and
policies to ensure Labor Code compliance, employers should look to avoid common
claims by doing the following:
1. Ensure that exempt
employees are properly categorized.
2. Avoid on-duty meal
periods for nonexempt employees.
3. Make sure nonexempt
employees are taking uninterrupted meal and rest breaks.
4. Train supervisors
about the importance of avoiding common PAGA violations.