Abuse of PAGA leads to Lawsuit

By TOM MANZO | President of the California Business & Industrial Alliance 

Dec. 19, 2018

The Private Attorney General Act (PAGA) was signed into law in 2003 by Gray Davis and championed by Senator Joe Dunn. Davis spent 1,778 days as governor and signed 5,132 bills into law and that is an average of 2.89 bills a day. PAGA was approved by Governor Gray Davis on October 12, 2003, just five days after the California electorate voted to recall him from office.

If you are not familiar with PAGA, this law deputizes each and every California employee (and his or her private contingency-fee attorneys) to sue their employers on behalf of the State. The California Labor Laws are composed of myriad rules, standards, and obligations, which touch nearly every aspect of the employment relationship. Many of the California Labor Laws are unclear, cumbersome, counter intuitive and impossible to follow. It is no wonder as the California Labor Law Digest published by the Chamber is over 1,100 pages.

If you are take your lunch later than 5 hours, even a second, it is a violation, or a gift card for the holidays is not put into the overtime rate is a violation. Do you have proper commission agreements? Third break after 10 hours or waived lunch? The list of potential traps just keeps going and it is impossible to follow all of these regulations and many are not appropriate for some industries. The Labor Laws cannot be a one size fits all and I think the only ones who understand these complex laws are the trial attorneys suing businesses daily.

Since this law was enacted over 35,000 PAGA notices have been sent out by the state and most turn into class action lawsuits costing employers millions. PAGA is used by the trial lawyers to start the process and many times settlement amounts going to the state are negotiated in mediation. As a matter of fact what is supposed to go to the aggrieved employees is also negotiated in mediation and what are not negotiable are the trial attorney’s fees thanks to the state.

An employee alleges (without any proof) that for the past year, he has worked 2 minutes of “of-the-c1ock” overtime each pay period attending to miscellaneous tasks related to opening or closing Employer’s place of business. Under the Starbucks decision, discussed supra, the employee has a cognizable claim of failure to pay minimum wages and overtime. Employer has 30 employees and weekly pay periods. Employee’s hourly rate of pay is $ 11.00 per hour, which means the approximate amount of unpaid minimum wages is: $19.07 (2 minutes x 52 pay periods: 104 minutes; 104 minutes / 60 minutes: 1.73 hours; 1.73 hours x $11.00: $19.07), and the approximate amount of unpaid overtime wages are: $9.54 ($19.07 x. 0.5: $ 9.54). So the total approximate amount of wages Employer failed to pay Employee, unknowingly, is $28.61.

Through PAGA, this employee has authority to seek a maximum of $69,508.61 civil penalties and personal damages for the alleged failure of Employer to pay Employee: $28.61, which are 2,430 times the alleged actual damages. With 30 employees your exposure is over 2 million dollars and this does not include employees no longer working for you. Those employees are owed 30 days’ pay and waiting time penalties.

What happens next is where things really go wrong as this employee will never see $ 69,000. All of that is done in negotiations behind closed doors. That Starbucks employee received a check for less than $ 700 and the rest goes to the trial lawyer and the state.

Our organization The California Business & Industrial Alliance filed suit against the State of California on November 28th of this year challenging its constitutionality. The complaint is 54 pages spelling out how this law began and where we are at today. It is time business owners, community leaders, legislators, all learned more about how badly this law is abused and helped facilitate real reform. Employers and employees both lose when it comes to PAGA.

The views expressed above are those of the author and do not necessarily reflect those of the Inland Empire Business Journal.