A compromise on the Private Attorneys General Act levies significant changes to the 20-year-old legislation, changes that have some plaintiff’s attorneys concerned with the fallout and employer defenders breathing a sigh of relief.

The legislation, colloquially called PAGA in legal circles, broadly allows employees to file civil lawsuits alleging labor code violations in the event the state attorney general declines to bring their case forward. Generally speaking, the reforms – approved by large majorities of the state assembly and senate and signed into law by Gov. Gavin Newsom in June – are designed to incentivize employers to correct alleged bad behavior and also boost payouts to employees in some circumstances while also allowing more discretion to judges to dictate terms of the cases.

To Marcus Bradley, co-founder of Westlake Village plaintiff’s firm Bradley Grombacher LLP, these changes simply open a “pandora’s box” of potential new problems to bog down the legal system with a “morass” of lawsuits trying to probe the minutiae of the law.

“What it’s going to do is spark a lot of litigation over whether (employers) have fully cured violations and made their employees whole,” he speculated.

On the other side of the coin, employment attorneys who defend companies against these claims are happier. The reforms, some argue, will disincentivize suits over trivial claims and also increase options to make employees whole for actual violations.

“Any sort of curtailment on what has been going on for nearly 20 years with PAGA is a step in the right direction,” said Kevin Sullivan, a member at Epstein Becker & Green P.C.’s office in Century City. “It’s definitely a step in the right direction for businesses.”

Wanting to change the law

First enacted in 2004, PAGA was designed to give aggrieved employees options when the beleaguered California Labor and Workforce Development Agency did not pick up claims of labor code violations.

Proponents at the time contended that the state’s labor market was growing at a much higher pace than Sacramento could keep up with in terms of staffing labor enforcement officials. The law allowed private attorneys to file these challenges on behalf of the denied employees. Successful cases had employees collecting a quarter of the penalties and the state receiving the remainder, with them splitting the attorneys’ payout.

Employers have been frustrated with the law from the very beginning, often illustrating the plaintiff’s attorneys as filing the suits on specious grounds to make bank while rewarding the employees with relatively little. Having initially gotten into employment law on the plaintiff’s side, Sullivan said it was the act of taking businesses to task on “ticky tack” violations that drove him to the other side.

“I don’t think that, when it was introduced, the legislature really comprehended what kind of a monster PAGA would become,” he added. “With these types of lawsuits, where the employees – the allegedly aggrieved employees – get little. The government oftentimes gets little and it’s really the plaintiff’s attorneys who make out like bandits.”

That frustration resulted in a ballot measure for November voters, proposing to repeal the PAGA law and replace it with a more comprehensive measure. The avoid the contentious measure campaign, the legislature put together the compromise and enacted it, in exchange for the measure’s proponents pulling the item from the ballot. Newsom signed the law after that measure was withdrawn.

“This reform is decades in the making – and it’s a big win for both workers and businesses,” Newsom said in a statement. “It streamlines the current system, improves worker protections, and makes it easier for businesses to operate. I want to thank labor and business groups for coming together to hammer out this deal, and our legislative partners for getting these bills to my desk.”

What the changes are

The reform legislation changes the penalty structure for employers who lose PAGA suits.

The new law imposes a lower cap on penalties for employers who take steps to cure violations and make workers whole after receiving the PAGA notice, or even before they receive notice of the suit. It also creates higher penalties for those found to have acted maliciously or fraudulently in their labor law violations. Employees also receive 35% of the penalties instead of 25%.

The reform also expands which violations employers can cure, allows courts to levy more generous terms for employers to cure and requires the plaintiff to have personally experienced the alleged violation – whereas before, a group of employees that experienced differing violations could combine on one PAGA action.

The compromise also gives judges more discretionary power to manage the size of these cases – like by having stricter criteria to be a plaintiff on the case. Sullivan said he felt this would disincentivize vaguely worded claims and require more specific allegations to be documented and filed.

Conversely, Bradley felt that the changes will have a chilling effect on employees wanting to seek claims and the availability of attorneys willing to take them on.

“This is not a win for plaintiffs or employees,” he said.

The new regulations are effective for any cases filed after June 19. Any action taken before then will follow the former regulations.

“Many legislators have called the agreement reached to reform PAGA ‘monumental’ and we could not agree more,” Jennifer Barrera, president and chief executive of CalChamber, said in a statement. “Governor Newsom’s signature on these two bills represents a successful conclusion to months of hard work and compromise among all parties. The business community, labor, and legislative leadership worked together to establish meaningful change that will curtail rampant PAGA lawsuit abuse while offering better outcomes for employees who have been wronged. The new policies coming out of the reform measures signed today will create more fairness in the process for small businesses and, importantly, incentivize them to understand and comply with labor laws that impact their workforce to the benefit of all.”

Will the landscape change?

Bradley’s practice has been oriented around wage-and-hour class actions since 2000, so his firm has likewise followed that track since it formed in 2016. About half of the firm’s work is PAGA-related.

“People are moving on to different areas of law because they see it as so onerous now,” he said. “Plaintiff’s lawyers are going to think twice about filing these cases.”

Similarly, about half of Sullivan’s colleagues at the office are handling PAGA claims for their clients. He contended that plaintiff’s lawyers retain a lot of incentive to pursue these actions, but noted that there was more room for judges and defense attorneys to interrogate the extent of the allegations earlier on and find a more amenable resolution – making the employees whole for their underpaid wages or lack of required breaks, as examples – based on their veracity.

“What I think will happen more, particularly with this new cure provision, is perhaps earlier on we will investigate the alleged violations, seeing if really there’s some merit to the claims and conferring with clients whether they – if there is merit – want to try to correct these,” Sullivan added. “It’s really a rare day when the plaintiff will allege sufficient facts with the PAGA notice, truly apprise us of what they’re claiming. PAGA claims are frequently alleged in general, conclusory type language, rather than having specifics.”

For all of the claims that plaintiff’s attorneys are chasing money, Bradley countered that the new regulations will look like dollar signs for defense attorneys who can get away with upping their fees to scrutinize the claims. What’s being billed as potentially saving businesses from onerous penalties, he said, might still cost businesses in the end.

“There’s a reason why defense attorneys are running around hiring attorneys,” Bradley said. “While the penalties will be lower, the employers will be paying their attorneys more.”