By Ashton A. Farr, Esq.
California’s infamous Private Attorneys General Act (“PAGA”) started from a novel idea: incentivize private citizens to file private lawsuits to enforce California Labor Code violations on behalf of California’s Labor and Workforce Development Agency (“LWDA”), because the LWDA lacked the resources to pursue the violations on its own. Under PAGA, an “aggrieved employee” is essentially deputized by the state to prosecute Labor Code violations on behalf of other aggrieved employees. In some obvious ways, PAGA claims are similar to class actions, but successful PAGA claims result in some of the recovery being paid to the State of California. To incentivize the prosecution of PAGA claims, the plaintiff employee receives twenty-five percent of the PAGA penalties recovered, while LWDA receives the remaining seventy-five percent. Plaintiff’s lawyers are also incentivized to pursue PAGA claims because they are entitled to recover attorney’s fees if they prevail. There has been a dramatic rise in the number of PAGA claims in recent years, and the risk of PAGA claims – and the cost of defending them – has been of increasing concern to California businesses and business owners including those in the construction industry, which are particularly vulnerable because of the size of their labor forces. The larger the labor force, the bigger the risk posed by a PAGA claim.
Fortunately for those companies with unionized labor, the California Conference of Carpenters successfully lobbied the Legislature to exempt unionized construction workers from PAGA. For the PAGA exemption to be applicable, a unionized employee must earn at least thirty percent more than California’s minimum wage. But the risk of PAGA claims exists for most other employers across California. And the exemption for unionized labor is set to expire on January 1, 2028. In addition, the exemption only applies to collective bargaining agreements in effect prior to January 1, 2025. This could cause employers to lose the exemption when a collective bargaining agreement expires prior to January 1, 2028.
In recent years, PAGA has faced significant legal challenges. In 2022, the U.S. Supreme Court gave employers a significant victory when it ruled that individual PAGA claims could be arbitrated and that representative PAGA actions could potentially be dismissed when that occurred. In 2023, the California Supreme Court narrowed that victory when it ruled that a representative PAGA action could proceed in court when an aggrieved employee is successful in prosecuting individual PAGA claims in arbitration. In early 2024, the California Supreme Court held that PAGA claims could not be dismissed for being unmanageable. However, all of this could soon become moot, because the fate of PAGA itself may not survive this year’s election season.
The legislation that provided for PAGA actions may be repealed this year. Californians for Fair Pay and Employer Accountability (“CFPEA”) is the political action committee behind the California Fair Pay and Employer Accountability Act (“FPEAA”), which seeks to repeal PAGA. FPEAA has qualified for the November 2024 ballot. Repeal of PAGA would significantly reduce risks faced by California employers.
If the repeal initiative is successful, it would be effective mid-December 2024. PAGA penalties would no longer accrue in any pending pre-judgment civil action and private citizens would no longer be able to file representative actions for Labor Code violations. Instead, administrative actions would have to be prosecuted by the Labor Commissioner for the California Division of Labor Standards Enforcement. Logically, this change would dramatically reduce the number of employers facing potential liability for Labor Code violations. But those who do may face greater risk: FPEAA would double the current fine for willful violations, with one hundred percent of any penalties distributed to the employee.
Efforts to end PAGA claims are strongly supported by the business community. CFPEA has received more than ten million dollars in contributions, including from pro-business interests. Although there is currently little organized opposition to FPEAA, organized opposition will certainly coalesce as the November 2024 election draws nearer. Until then, California employers can only wonder whether PAGA will endure.
Ashton A. Farr,, Esq., is an associate attorney with the law firm of Dunn DeSantis Walt & Kendrick. Ashton’s practice is focused on the representation of businesses in a wide variety of matters, including commercial disputes, employment matters, construction litigation, and all manner of torts and fraud claims.
Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies. DDWK’s real estate development and construction practice includes representing all segments of the development and construction industries on both private and public projects.
You can find additional information and resources related to helping business owners and their businesses on the DDWK website.
