Shortly after Dee Dee Myers became director of the Governor’s Office of Business and Economic Development (GO-BIZ) late last year, she said she understood the challenges the state’s high costs and strict regulations impose on businesses.
“Continuing to dig into those problems and try to figure out new solutions, creative solutions, is really important,” she told CalMatters in February.
Unfortunately, when it comes to one of the biggest challenges family businesses face in California – the Private Attorneys General Act, or PAGA – it doesn’t appear that state officials want to find those solutions.
Business groups, including the Family Business Association of California, have tried to educate officials about PAGA’s impact. One of our members, who is in the middle of a PAGA shakedown, recently wrote to Ms. Myers to ask for help. There was no response. In fact, the only group that has gotten relief is construction unions, which secured legislation exempting them from PAGA lawsuits.
PAGA allows employees to sue on behalf of the state for almost every Labor Code violation and imposes a $100 fine for the first violation and $200 for each subsequent violation of the same provision – even something as innocuous as listing the corporate name on the pay stub instead of the company the employee works for. PAGA attorneys look for companies with numerous employees because these fines can be assessed for each employee past and present for each pay period and can be combined with class action suits for settlement purposes, so potential penalties quickly add up.
These claims have grown more than tenfold since the law was created, with attorneys’ fees averaging more than $405,000 per case – a main reason why the average settlement in these cases is a staggering $1.2 million, according to a recent study by the California Business and Industrial Alliance (CABIA).
The family business that reached out to GO-BIZ received a letter eight months ago from a law firm on behalf of a former employee, claiming that the company had violated numerous Labor Code requirements, including those covering overtime and lunch periods and rest breaks. This firm has filed over 800 similar claims.
“That’s all untrue and they have no proof,” the owner said. “They throw those accusations at you and expect you to defend yourself and just bury you in paperwork. We’ve already spent well north of $100,000 in attorney fees and that doesn’t include all the staff time to audit all the payroll records and time sheets,” the owner said.
“My attorney said it could take as much as $1 million to fight this. Who has that much to throw at it? I don’t. The bottom line is you either pay that money to the plaintiffs’ lawyers or you pay it to your own attorney. Like we told Dee Dee Myers, there is a huge difference between billion-dollar companies that can build this into their budgets and have a team of attorneys on staff and a company such as ours that simply cannot afford this cost.
“It feels like extortion, but if I cannot afford to pay, then I lose the business.”
Too many elected officials say PAGA is just a cost of doing business in California. But it doesn’t have to be. Let’s repeal it and return all Labor Code enforcement to the state Labor and Workforce Development Agency. That agency has continued to adjudicate many claims since PAGA was enacted, and the CABIA study found that in these cases, violations resulted in workers receiving almost twice as much money and in less time, while employers paid less than half of what they pay in PAGA cases.
Keeping PAGA in place will lead to more situations like this.
“Ironically, in spite of the (state’s) efforts on COVID-19 relief and the attempt to help businesses stay open in California, it is becoming increasingly likely that we will be forced to shutter operations,” the owner wrote. “PAGA is a disastrous law that is meant to help workers but instead buries small employers who really just want to help their communities, their families, their workers and all of the people they serve.”
This commentary originally appeared in the Orange County Register and other publications in the Southern California News Group.