California's PAGA Law Poses Huge Risks for Employers

The California Private Attorneys General Act (PAGA) has been instilling fear in employers for years, because of the huge potential for penalties. Employers have been facing a barrage of PAGA claims, and all companies should be aware of the risks. Sherry Shavit is an attorney with Tharpe & Howell in Sherman Oaks, who gave a Jan. 28 session on PAGA at the Professionals in Human Resources Association 2020 Legal Update in Anaheim, Calif.

Penalty awards and settlements have been increasing, while a key court ruling on PAGA is expected later this year, she said. Here are the steps she recommended employers take to reduce the risk of a claim.

PAGA Overview

PAGA is unique to California, Shavit noted. The law took effect in 2004 and allows workers to pursue civil penalties for Labor Code violations on behalf of themselves and other workers. This is in addition to bringing individual or class-action claims.

PAGA was intended to deputize citizens as private attorneys general to enforce the Labor Code, due to the state government's limited resources. The law allows these employees to step into the shoes of state regulators to recover civil penalties and to receive part of the amount recovered as compensation. Seventy-five percent of the penalties recovered go to the state, and 25 percent go to employees.

To pursue a PAGA claim, an individual must send a notice to the state of California within a year of the alleged violation. The letter must include specific facts and theories regarding the allegation, and the employer also must be notified. The plaintiff must wait 65 days before filing a civil lawsuit.

For the first violation, the default penalty is $100 per employee per pay period. For a subsequent violation, it's $200 per person per pay period. Nevertheless, courts have discretion when awarding these penalties.

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

In a 2014 decision in Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court held that PAGA waivers in workplace arbitration contracts are unenforceable.

The California Legislature's "purpose in enacting the PAGA was to augment the limited enforcement capability of the Labor and Workforce Development Agency by empowering employees to enforce the Labor Code as representatives of the agency," the court said. "Thus, an agreement by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code."

During the session, Shavit said the California Labor Code includes many "hyper-technical" provisions and that plaintiffs' lawyers are ready to bring attention to alleged violations. She added that PAGA also poses other dangers, such as broad discovery through which plaintiffs' attorneys can ask employers to hand over a wide range of information. Overall, PAGA can be time-consuming, confusing and expensive for companies, she said.

Recent Developments

In recent years, PAGA penalty awards and settlements have been skyrocketing, Shavit noted. She cited examples of costly cases for employers:

• In a high-profile PAGA decision by a California federal judge in 2019, Walmart was ordered to pay $102 million for violating wage-statement requirements.
• In a PAGA case over suitable seating, Walmart agreed to a $65 million settlement in 2018.
• In a 2019 PAGA case in San Diego Superior Court, a judge ordered Alaska Airlines to pay $25 million for wage-calculation violations.
  

Meanwhile, employers are waiting for clarification on a key issue. In Kim v. Reins International California, Inc., the dispute centers around whether an employee who has settled his individual claims can still have standing under PAGA. A ruling from the California Supreme Court is anticipated later this year.

Takeaways for Companies

In light of all these concerns, Shavit recommended several steps to reduce risk:

• Conduct an internal audit of wage and hour practices.
• Review handbook policies.
• Review applicable wage orders.
• Review wage statements with a "fine tooth comb" to ensure accuracy.
• Analyze any unique issues in the employer's industry that may lead to violation.
• Make sure arbitration agreements don't have an unenforceable PAGA waiver.
• Take all employee complaints seriously.

Toni Vranjes is a freelance business writer in San Pedro, Calif.