Doubts Raised About New California PAGA Requirements

By Toni Vranjes Dec 6, 2016
LIKE SAVE PRINT
Reuse Permissions

In response to a spike in Private Attorneys General Act (PAGA) lawsuits, California enacted new requirements to increase regulatory oversight. But some lawyers say that the new requirements will do little to reduce this litigation because they don't go far enough.

Under PAGA, which was enacted in California in 2004, aggrieved employees can sue over alleged labor violations on behalf of themselves and other workers.

The law allows these employees to step into the shoes of state regulators to recover civil penalties, with 75 percent of the penalties recovered sent to the state and 25 percent going to employees.

PAGA claims are particularly troublesome for California businesses because they can include alleged hypertechnical labor violations, according to Matthew Sonne, an attorney with Sheppard Mullin in Orange County, Calif. He said companies can be sued for errors on wage statements, like listing the incorrect employer or failing to list the pay period.

Furthermore, the fines can add up quickly. The initial violation carries a $100 penalty for each employee per pay period. For every subsequent violation, it's $200 per employee per pay period. On top of that, plaintiffs can recoup attorney fees.

Although the act was amended in June to provide for more governmental oversight and curb frivolous claims, experts say that the changes might not have enough of an impact.

The amendments did impose additional requirements, but none of them changed the law dramatically, according to Los Angeles attorney John Zaimes of Mayer Brown.

Background on PAGA

When plaintiffs are precluded from pursuing class claims because of arbitration agreements, they can still sue employers under PAGA, Sonne said.

In the 2011 AT&T Mobility v. Concepcion decision, the U.S. Supreme Court upheld the enforceability of arbitration agreements that include class-action waivers.

In 2014, however, the California Supreme Court held that PAGA waivers are unenforceable under state law (Iskanian v. CLS Transportation Los Angeles). The state high court said that PAGA claims are for the public benefit and that it is contrary to public policy to enforce waivers.

Following the Iskanian decision, PAGA claims skyrocketed—with paystub cases the most common type, Sonne said.

He noted that he's currently handling more than a dozen PAGA cases, while his firm is handling hundreds of these cases.

Meanwhile, the state has been collecting an ever-increasing amount of PAGA penalties. The amount of penalties received in California jumped to $13.6 million in 2015-16 from $4.5 million in 2010-11.

In O'Connor v. Uber, a federal judge rejected a wage and hour settlement proposal primarily because the PAGA payment was too low. In that case, the Uber drivers had agreed to settle their PAGA claims for $1 million even though they had previously estimated $1 billion in possible civil penalties for the 300,000 drivers represented in the case.

New PAGA Requirements

New PAGA requirements took effect in June as part of the broader budget bill S.B. 836. Among the major elements of the new amendments:

  • Increasing the filing fee for PAGA claim notices to $75 from $3.
  • Extending the time frame for the state to review PAGA notices to 60 days from 30 days.
  • Lengthening the time a plaintiff must wait to file a lawsuit after notifying the state of alleged PAGA violations to 65 days from 33 days.
  • Requiring that a proposed PAGA settlement be sent to state regulators at the same time it's sent to the court.

A major goal of the amendments is to cut down on frivolous litigation. When state regulators opt to investigate a PAGA claim, it forestalls a private lawsuit during the investigation period.

Potential Impact on PAGA Cases

According to Sonne, raising the filing fee to $75 from $3 isn't going to significantly reduce the number of PAGA claims filed. Neither is increasing the agency's deadline to review PAGA notices to 60 days from 30 days, he added.

The requirement that proposed PAGA settlements be sent to regulators so that the state can evaluate these agreements means that regulators might challenge the amount of a settlement allocated to PAGA penalties, although it's still an open question, said Linda Auerbach Allderdice, an attorney with  Holland & Knight in Los Angeles.

Overall, she said, it's too early to know the impact of the PAGA amendments. That will largely depend on how active the state is in its new oversight responsibilities, she said.

To better handle PAGA cases, the state approved 10 positions and $1.6 million in funding for 2016-17.  State regulators hope the changes will help them better track PAGA cases and evaluate whether the system is working, said Garin Casaleggio, spokesman for the California Labor and Workforce Development Agency.

Sonne said he expects regulators to be slightly more involved in reviewing and investigating cases—but not substantially more involved.

Best Practices for Employers

Given that PAGA lawsuits are still a huge worry, it's a good idea to conduct an annual audit of wage and hour issues such as wage statements, meal and rest periods, overtime pay, misclassification as an exempt employee, and misclassification as an independent contractor.

"You would be wise to take a second look at your policies and your practices to make sure that you're complying with the law the way you should be," Zaimes said.

[SHRM members-only HR Q&A: What are the rules in California regarding wage deductions?]

Also, make sure that supervisors receive proper training on these topics, Allderdice added.

Meal periods and rest breaks continue to be major areas of litigation, Sonne said. The law provides a very narrow definition of appropriate "on-duty meal breaks," so be careful in this area. Also, all "meal period waivers" should be in writing.

Another step: evaluate pay periods. PAGA penalties are assessed per pay period, and many employees are paid weekly. But by paying weekly—instead of semimonthly or biweekly—employers double their exposure under PAGA, according to Sonne.

"PAGA reinforces the importance of being very measured and weighing the pros and cons of weekly pay periods," Sonne said.

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

 

Was this article useful? SHRM offers thousands of tools, templates and other exclusive member benefits, including compliance updates, sample policies, HR expert advice, education discounts, a growing online member community and much more. Join/Renew Now and let SHRM help you work smarter.

LIKE SAVE PRINT
Reuse Permissions

SHRM CONNECT

Join SHRM's exclusive peer-to-peer social network

Join Today

Job Finder

Find an HR Job Near You

SPONSOR OFFERS

Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 3,200 companies

Search & Connect