Actions under California’s Private Attorneys General Act (PAGA) have long plagued employers, both large and small, but that all may change this year.

What is PAGA?

PAGA, enacted in 2004, permits a single employee to stand in the shoes of the state’s Attorney General and file suit on behalf of other “aggrieved” employees to recover penalties for California Labor Code violations. The potential recovery against employers can be substantial, with default penalties calculated as $100 “for each aggrieved employee per pay period for the initial violation,” and $200 per aggrieved employer per pay period for “each subsequent violation.” As such, potential PAGA awards commonly reach millions of dollars against small employers, and tens of millions against large employers, just for simple administrative oversights.

In addition to the potential for steep penalties, several California court decisions have expanded the reach of PAGA over the years. In 2009, the California Supreme Court held that employees bringing actions under PAGA need not comply with the strict procedural rules governing class actions. See Arias v. Superior Court, 46 Cal. 4th 969 (2009). Then, in 2014, the California Supreme Court held that employees could not waive their right to bring PAGA claims in court, paving the way for an increase in PAGA litigation. See Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014).

Recently, California courts have provided some limits to the expansion of PAGA. In 2021, the California Court of Appeals provided a potential “manageability” defense for employers.  Specifically, in Wesson v. Staples The Office Superstore, LLC, the Court of Appeals held that trial courts have the discretion to strike claims for penalties under PAGA if the claims will be unmanageable due to individualized issues at trial. See 68 Cal. App. 5th 746 (2021).

Is there an end in sight?

However, the fate of PAGA may rest in the hands of California voters this year. In December 2021, California’s Secretary of State approved the distribution of a petition to put an initiative on the 2022 ballot called “the California Fair Pay and Accountability Act.” The California Fair Pay and Accountability Act aims to essentially repeal PAGA, and replace it with an alternative framework for the enforcement of labor laws.

Of importance to employers, the California Fair Pay and Employer Accountability Act endeavors to:

  • Eliminate the current system permitting employees to stand in the shoes of the state in enforcing labor laws. Employees would instead file a complaint directly with the Labor Commissioner.
  • Provide employees with 100% of the award recovery, rather than apportioning 75% to the Labor and Workforce Development Agency.
  • Increase funding to the Division of Labor Standards Enforcement to better enforce the Labor Code.
  • Empower the Labor Commissioner to double penalties for willful violations of the Labor Code.
  • Eliminate the ability to collect attorneys’ fees as part of an award.
  • Create a Consultation and Policy Publication Unit to allow employers without pending actions against them to cure violations without penalty.

Employer Takeaways

  • Proponents of the initiative have until June 6, 2022, to collect at least 623,212 signatures (the required number of signatures per the California Constitution) for the measure to appear on the ballot in the November 2022 general election. If the initiative passes, and the California Fair Pay and Employer Accountability Act becomes law, employees and their counsel will no longer be able to file suits on behalf of the California Attorney General for Labor Code violations. Instead, the Labor Commissioner would be able to directly enforce the Labor Code.  And because the proposed law would eliminate the recovery of attorneys’ fees, employers would likely see a reduction in “shakedown” lawsuits brought by the plaintiffs’ bar.
  • While the passage of this law would be a relief to employers in one sense, the initiative also seeks to double existing statutory penalties and civil penalties for companies willfully violating the law. Accordingly, employers would still need to ensure they comply with California labor laws. To that end, the California Fair Pay and Employer Accountability Act would allow an employer to seek consultation by state regulators, and cure violations without penalty.
  • For pending PAGA matters, the California Fair Pay and Employer Accountability Act provides that after the effective date of the initiative (the fifth day after the Secretary of State certifies election results, unless a different effective date is specified by the measure), PAGA penalty awards will cease for any pending actions that have not resulted in a judgment. Therefore, for employers with pending PAGA lawsuits against them, the initiative would keep employees and the state from recovering penalties under the former PAGA statute.

Other PAGA Developments in 2022 to Watch

It remains to be seen whether the initiative will make it on the ballot, and, if it does, whether California voters will vote it into law. However, even if the initiative is unsuccessful, there are other recent PAGA-related developments employers should monitor.

On March 30, 2022, the Supreme Court of the United States (SCOTUS) is set to hear Viking River Cruises, Inc. v. Moriana, a case with potentially significant implications for employers.  SCOTUS will consider whether the Federal Arbitration Act (FAA) “requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.” A favorable ruling from SCOTUS would allow employers to enforce arbitration agreements with PAGA waivers- meaning PAGA claims may be compelled to arbitration, where the litigation of claims is often more cost-effective. Employers should keep an eye on this case (a decision is expected in summer 2022), and be prepared to work with counsel to update their arbitration agreements to include PAGA waivers if SCOTUS’ ruling is favorable to employers.