Los Angeles businesses can now celebrate a historic agreement between business groups and labor advocates that has brought meaningful reform to California’s Private Attorneys General Act (PAGA). This landmark agreement, embodied in two bills (SB 92 and AB 2288), was recently passed by the Legislature and signed by Governor Newsom. These PAGA reforms maintain a vital mechanism for workers to resolve labor claims and receive fair compensation while curbing frivolous lawsuits that have long plagued small businesses, nonprofits and employers with billions of dollars annually.
Understanding PAGA: The Private Attorneys General Act
The Private Attorneys General Act, commonly known as PAGA, was enacted in 2004 to address labor law violations and empower employees to act as private attorneys general. This law allowed workers to sue their employers on behalf of the state for labor code violations, seeking penalties that the state labor enforcement agencies would otherwise pursue. The intent behind PAGA was to supplement the state’s limited resources for enforcing labor laws by incentivizing employees to report non-compliance. However, while PAGA was designed to protect workers, it has also been controversial. Critics argue that the act has often been leveraged primarily for its punitive aspects, serving the interests of attorneys rather than the employees it was meant to benefit. This perspective has driven our persistent efforts to advocate for reforms that balance the needs of workers with the operational realities of businesses.
For many years, employers hit with a PAGA lawsuit faced a grim choice: pay the attorney’s demand or endure costly litigation to defend against the claims. No matter how meritless the claim, the no-win scenario has significantly burdened businesses across California.
Feeling ‘the heavy burden’
Members of the Greater San Fernando Valley Chamber and businesses across the Los Angeles area have felt the heavy burden of PAGA, leading to significant operational challenges and difficult decisions.
For example, a small manufacturing company faced multiple PAGA lawsuits, resulting in substantial legal fees and settlement costs. The financial strain forced the company to halt its plans for expansion and cut back on employee benefits to stay afloat. Another business in the hospitality industry experienced a similar fate; PAGA-related litigation drained resources that could have been used to upgrade facilities and hire additional staff. Consequently, workers bore the brunt of these impacts, with some losing job security and others missing out on potential wage increases and improved working conditions. The cumulative effect of PAGA on businesses often translates to reduced economic growth and limited opportunities for workers across the state.
The system was broken, and attorneys frequently exploited a law intended to protect workers, twisting its purpose for their own benefit. It was common to hear of cases where a plaintiff’s counsel received hundreds of thousands of dollars from a settlement while workers received pennies on the dollar. This exploitation has led to a lack of trust in the legal system and frustration among employers and employees, creating an adversarial environment that benefits no one. Small businesses, in particular, have been disproportionately affected, with some even facing the possibility of shutting down due to the financial burden imposed by PAGA claims.
Major changes to the process
SB 92 and AB 2288 introduce crucial changes to the claim process, encouraging compliance with labor laws by capping penalties on employers who quickly take steps to comply with California’s complex Labor Code, and reducing penalties for violations that do not cause confusion or economic harm to employees. This approach aims to mitigate the impacts of frivolous lawsuits over simple clerical errors on a paystub that previously could compel employers to issue large settlement checks despite no actual harm or delay to employee compensation under the prior version of PAGA.
These changes also incentivize employers to rectify inadvertent compliance lapses, rewarding those who actively pursue correct practices. This shift not only protects businesses from undue financial strain but also promotes a culture of compliance and improvement, benefiting the entire workforce. Employers are now more likely to invest in training and development, knowing that minor errors will not lead to catastrophic financial consequences. Furthermore, the reforms create a more balanced approach, where genuine grievances are addressed, and employees receive fair compensation for actual harms suffered rather than opportunistic claims that exploit technicalities.
Running a business in California is challenging, with complex codes to navigate, new laws to comply with every January, and legal vulnerabilities that can devastate a business. These bills are a much-needed win for California businesses, making operations in the state more manageable. The Greater San Fernando Valley Chamber of Commerce is proud to support this comprehensive reform package, achieved after months of negotiations between business groups led by CalChamber and labor advocates.
This is a significant win for our local business community, including owners and workers, and a testament to what can be accomplished through good-faith policymaking. The reforms are expected to foster a more cooperative relationship between employers and employees, leading to a more vibrant and resilient economy.
Implementing SB 92 and AB 2288 will likely serve as a model for other states grappling with similar issues. It demonstrates that through collaboration and a willingness to address the concerns of all stakeholders, meaningful and balanced reforms are possible. These changes represent a turning point for businesses in the Los Angeles area, offering a fairer, more predictable legal environment where businesses can thrive without the constant fear of debilitating lawsuits. The positive impacts of these reforms will be felt across the entire state, contributing to a healthier business climate and, ultimately, a more robust economy for all Californians.
Nancy Hoffman Vanyek is the president and chief executive of the Greater San Fernando Valley Chamber of Commerce. She has over three decades of leadership experience.
