A recent ruling by the California Supreme Court is just one more reason why family businesses are working to pass the California Fair Pay and Employer Accountability Act in November. Doing so will be by far the best shot at reforming how the state deals with Labor Code violations and ensuring that both employees and employers benefit.At issue is the Private Attorneys General Act, or PAGA, signed into law by Gov. Gray Davis as he was about to be recalled as a thank-you gift to trial lawyers and unions for their support. This law deputizes employees to file lawsuits against employers on behalf of the state for even minor and inconsequential violations of the 800-page Labor Code – and allows trial lawyers to receive huge sums that are far greater than the alleged victims receive.
In a recent settlement, attorneys made $21 million while the employees received $108 each. Family businesses and nonprofits have become major targets for predatory lawsuits that are often minor technical violations.
Attorney Bruce Scheidt, a shareholder with Kronick Moskovitz Tiedemann & Girard in Sacramento – a proud sponsor of the Family Business Association – says the Supreme Court decided that trial courts do not have inherent authority to dismiss or narrow PAGA lawsuits on manageability grounds, overturning a lower court ruling.
“This major ruling will continue to permit plaintiffs’ lawyers to use the threat of a PAGA lawsuit to bring broad and unrelated wage-and-hour claims to put pressure on employers to settle companion class action lawsuits, which are governed by manageability requirements that require plaintiffs to prove an employer consistently imposed a uniform policy or de facto practice that dominates over individualized issues,” Scheidt wrote.
“The high court refused to adopt the same manageability requirements on PAGA claims, holding that trial courts have ‘numerous tools’ to manage PAGA claims, such as limiting the presentation of evidence at trial and encouraging plaintiffs to be ‘prudent in their approach to PAGA claims,’ and that trial courts have discretion to reduce civil penalties that ‘may help to lessen the manageability concerns inherent with these [PAGA] actions.’ However, these tools are not a substitute for a trial court’s ability to dismiss a PAGA lawsuit where the plaintiffs cannot prove a uniform policy or practice of violating the Labor Code.”
It is expected that the Fair Pay Act would substantially reduce the number of lawsuits by eliminating the financial incentive to plaintiffs lawyers who use PAGA to extort millions of dollars from employers. The initiative would benefit employees and employers by:
- Replacing PAGA’s bounty hunter provision with an alternative enforcement mechanism through the state’s Labor Commissioner: Only the Labor Commissioner could file an enforcement action to collect penalties under PAGA, and workers would not be able to hire a private attorney.
- Requiring the Legislature to provide funding for enforcement.
- Allowing employers to correct identified Labor Code violations without penalties.
- Ensuring that 100% of penalties for uncorrected violations go to workers.
- And doubling penalties if employers willfully violate the law.