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This fall, California voters will have the opportunity to decide the fate of the state’s Private Attorneys General Act (PAGA). After receiving more than the 700,000 signatures in support, the “California Employee Civil Action Law and PAGA Repeal Initiative” has qualified for the November 5, 2024 state ballot. If the initiative passes, PAGA will be repealed and replaced with the “Fair Pay and Employer Accountability Act,” which will double the statutory and civil penalties for willful state labor law violations, require 100% of monetary penalties be awarded to employees, and provide resources to employers to ensure compliance with wage and hour laws. The new law will preclude plaintiffs’ attorneys from recovering any fees in actions brought under the statute and impose other requirements to effectively “de-deputize” citizen attorneys general.

What Would the New Law Do?

In response to wide ranging criticism of PAGA, the ballot initiative seeks to repeal and replace PAGA with the Fair Pay and Employer Accountability Act. If passed, the initiative would:

  • Double statutory and civil penalties for willful violations;
  • Award 100% of monetary penalties to employees (instead of the current 25%);
  • Provide resources to employers to ensure labor compliance and allow employers opportunities to cure violations without penalties;
  • Require that the Division of Labor Standards Enforcement (DLSE) be a party to all labor complaints;
  • Prohibit award of attorneys’ fees (which are currently permitted under PAGA); and
  • Require that the state legislature fully fund the DLSE to meet the division’s requirements by law.

What is PAGA?

PAGA, enacted in 2004, permits a single employee to stand in the shoes of the state’s Attorney General and sue 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.” PAGA actions can easily expose employers to millions of dollars in penalties for even relatively benign Labor Code violations.

While the intent of PAGA was to help the state enforce its wage and hour laws by deputizing employees to sue on the state’s behalf, PAGA only allows workers to collect 25% of monetary penalties for violations, while the remaining 75% must be paid to the California Labor and Workforce Development Agency. PAGA actions nevertheless remain attractive to plaintiff’s lawyers, however, because the statute authorizes plaintiffs to recover their attorneys’ fees and costs, which typically range between 25% and 33% of the total PAGA settlement, and because representative PAGA claims cannot be forced into arbitration. The result: PAGA is a much-loved tool of the plaintiff’s bar to extract settlements from employers, but such settlements ultimately do little to benefit “aggrieved” employees or the state.

The court’s interpretation of PAGA also has been mixed, leading to employer frustration and difficulties with compliance. For example, in 2014, the California Supreme Court held that employees could not waive their right to bring representative PAGA claims in court through arbitration agreements (using the logic that while the employees might have agreed to arbitrate disputes with their employers, in a PAGA action, the employees stood as proxies for the state, and the state had no such agreement with the employers), paving the way for an increase in PAGA litigation. See Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014). Then in 2022, the US Supreme Court held in Viking River Cruises Inc. v. Moriana that plaintiffs can be compelled to arbitrate their individual PAGA claims, and that representative claims should be dismissed pending completion of the arbitration (see our prior blog here). But a year later in 2023, the California Supreme Court rejected the US Supreme Court’s reasoning in Viking River Cruises, and instead held that plaintiffs do not lose standing to pursue PAGA claims on behalf of other employees even if their individual PAGA claims must be arbitrated. Then, this year, the California Supreme Court held in Estrada v. Royalty Carpet Mills Inc. that courts cannot strike PAGA claims based on an employer’s defense of the unmanageability of the claims. And as recently as May 10, 2024, the Ninth Circuit Court of Appeals split PAGA claims in a case. The court held that the arbitration agreement’s waiver of class or collective actions included a waiver of non-individual PAGA claims, opening the door for the plaintiff to bring the non-individual claims in a separate court proceeding despite the plaintiff having to take her individual PAGA claims to arbitration.

Employer Takeaways

Employers should keep a close eye on developments and on the November 5 election results. While the repeal of PAGA undoubtedly would provide relief to employers, the initiative will face stiff opposition from the California plaintiffs’ bar and unions. Whichever side prevails, the results will affect California wage and hour litigation for years to come.