The Santa Clarita Valley Chamber of Commerce has been working on PAGA reform for the past two years through our coalition partners and the Legislature. In a state Legislature that rarely delivers good news for employers, SCV businesses can celebrate the historic agreement between business groups and labor advocates that brings meaningful reform to California’s Private Attorneys General Act.
This agreement took the form of two bills (Senate Bill 92 and Assembly Bill 2288), passed by the Legislature and recently signed by Gov. Gavin Newsom. These PAGA reforms ensure workers retain a strong tool to resolve labor claims and receive fair compensation while limiting frivolous lawsuits that often target small businesses, nonprofits and all employers to the tune of billions of dollars annually.
For many years, when an employer was served with a PAGA lawsuit (often shakedown claims), they were left with limited options – pay the demand of the lawyer or retain counsel and pay for costly litigation to defend against the claims. No matter how meritless, businesses hit with a PAGA suit were in a no-win situation.
We have heard from many of our member businesses for years about the challenges of PAGA. Our businesses have grappled with the implications by making tough choices, such as scaling back expansion plans or limiting service offerings to manage the risk of costly litigation. For example, some companies have decided against opening new locations or investing in new projects due to concerns over potential PAGA claims. This has led to slower growth and fewer job opportunities. Workers, in turn, have faced stagnated career advancement and fewer job openings as businesses had to be more cautious and conservative in their expansion efforts.
This system was broken. Attorneys took advantage of a law intended to help workers and twisted its purpose to their benefit. Unfortunately, it was common to hear of cases where a plaintiff’s counsel would receive hundreds of thousands of dollars from a settlement, while workers received pennies on the dollar.
SB 92 and AB 2288 bring necessary change to how claims are processed so that businesses no longer risk significant financial harm for honest mistakes and reforms the penalty structure to ensure workers receive fair compensation for hardships when they do occur.
Previously, an employee could file a claim against an employer without themselves personally experiencing the alleged violations. Under these new laws, now an employee has to personally experience the violations brought in a claim and the violations must have occurred in the past year.
Additionally, caps have been put in place for employers who proactively take reasonable steps to comply with California’s complex Labor Code and penalties have been reduced for violations that do not cause confusion or economic harm to an employee. This will help address the frivolous lawsuits we saw for simple clerical errors on a paystub that did not harm an employee or delay receiving their paycheck, but under the previous iteration of PAGA, left employers writing large settlement checks.
This also rewards employers who are trying to do the right thing by giving them an incentive to correct honest mistakes.
Running a business in California is a challenge. There are complex codes to navigate, new laws every January to abide by and legal vulnerabilities that can flatline a business owner. These bills are a much-needed win for California businesses and will make operating in the state a bit more manageable.
The SCV Chamber of Commerce was proud to partner and help advocate for this comprehensive reform package that was achieved after months of negotiations between business groups, led by CalChamber, and labor advocates. We see this as a real win for our local business community, include owners and workers, and is a testament to what can be accomplished through good-faith policy making.
The SCV Chamber has a limited time special discounted PAGA toolkit to help our businesses proactively comply with labor laws and mitigate the risk of abusive PAGA lawsuits. Email [email protected] to order or find out more.
Ivan Volschenk is president/CEO of the Santa Clarita Valley Chamber of Commerce.
