California trial lawyers are licking their chops over a trio of new state employment laws that significantly expand the liability of Golden State businesses.
Assembly Bill 5, passed last month, severely restricts the use of contractors. Senate Bill 142, passed this month, adds rules regarding workplace lactation rooms. And, AB 673, also passed this month, allows employees to sue for punitive damages over late wages.
Businesses already face broad exposure to labor lawsuits in California because of its unique Private Attorneys General Act (PAGA). This law deputizes employees to enforce the state’s 1,100-page labor code. It passed in 2003 to help the state bureaucracy police its one million or so businesses with employees. However, it has morphed into a favorite tool of employment attorneys looking to exploit frivolous or good-faith labor violations into a quick payday.
State lawmakers should get ahead of the impending added PAGA pain caused by these new state laws by placing common-sense limits on PAGA. Labor unions, which have also been the targets of PAGA suits, should support these reform efforts. Fixing PAGA is a bipartisan issue.
Everyone agrees the state should prosecute serious labor law violations such as wage theft, harassment, and unsafe working conditions to the fullest extent. But PAGA often punishes employers who’ve committed labor violations in name only. These include such Dickensian nightmares as allowing employees to take a late lunch or not factoring in bonuses to employees’ base pay that determines overtime rates. Even clerical violations like typos on paystubs can result in PAGA lawsuits.
These small infractions have big monetary consequences, with settlements reaching hundreds of thousands or millions of dollars. Around 5,000 PAGA lawsuits occur annually.
PAGA is the blood in the water for some legal sharks. No wonder. Lawyers get the bulk of settlement funds after the state takes its 75% statutory cut. Meanwhile, employees receive pennies on the dollar.
One Yelp review reads, “I used this company in the past and I got a lousy 200 bucks when they charged my employer over $5,000 in back pay.” Google employees received just $15 each, while lawyers hauled in $300,000 after the search giant settled a PAGA suit last year. Uber drivers got $1.08 — roughly a quart of gas at California’s current pump prices — while lawyers received $2.3 million.
The PAGA scam is so lucrative that a whole cottage industry of consultants has sprung up to help identify supposedly aggrieved employees.
PAGA’s unintended consequences include fewer bonuses and a less flexible work environment. That means fewer holiday gift cards and reduced ability to work through lunch to leave a bit early to pick up kids from school. Could lactation room requirements make it more difficult for young women to get hired? Perhaps. Certainly, AB 5 will limit employment opportunities for the state’s nearly 2 million independent contractors.
Every PAGA dollar that goes to trial attorneys is one less that could have gone to higher wages, boosted benefits and better working conditions.
PAGA is not just a business issue. Numerous labor unions, including the United Farm Workers, SEIU, and Teamsters, have been on the receiving end of PAGA lawsuits.
Labor unions and businesses should unite to fix PAGA. By narrowing its scope to include only bonafide labor violations, employees would remain protected. But they’d also reap the economic rewards and flexibility from PAGA’s sword of Damocles disappearing from above employers’ heads. Legislators must act fast before PAGA goes from bad to worse.
Founder, California Business and Industrial Alliance