By Ken Monroe
Chair, Family Business Assn. of CA and president, Holt of California
This op-ed originally appeared in the Orange County Register on July 5, 2019You can’t watch TV or go online these days without hearing about more and more politicians who are calling for America to become a socialist nation. With California’s presidential primary just nine months away, these calls will become even louder in the months ahead.
As a family business owner and chairman of the Family Business Association of California, I’d argue that in many ways we already live in a socialist state. After all, a basic definition of socialism is that the state redistributes the wealth and controls the means of production. Through high taxes and ever-increasing regulations, California does both quite effectively.
But there are other ways the state redistributes wealth, and one of the most egregious is the Private Attorneys General Act, or PAGA.
PAGA was one of the last bills signed into law by Gov. Gray Davis before his historic recall in 2003 and was his parting gift to the state’s trial lawyers. It allows private attorneys to act as the state and use the 800 pages of labor laws on the books to sue employers over any and all violations, even for incredibly trivial issues. For example, if a company doesn’t list its full legal name on a paystub, it’s a violation.
But no matter how trivial, the penalties for each labor code violation are the same: $100 for each employee per pay period for an initial violation, and $200 for each employee per pay period for each subsequent violation, along with other possible penalties.
These violations can be stacked, with multiple penalties for each statutory wage violation and can quickly add up. I know, because my company, Holt of California, was sued over allowing our employees the flexibility to schedule lunches so they could eat with friends, even if that meant they worked more than five hours set without a meal break.
Because the possible penalties and legal fees in PAGA lawsuits can easily total millions of dollars if a suit goes to trial, most employers settle the cases. While the employees usually get about 60% and the lawyers get about 35%, that means a few lawyers get large checks while the numerous employees end up with relatively little.
PAGA has created an unfair distribution of wealth and should be repealed, with the state once again given the power to enforce labor laws. Since trial lawyers are a major part of the state’s progressive governing coalition, this probably won’t happen any time soon.
But there are some reforms that could at least make PAGA truly focus on the needs of employees more than the trial lawyers’ desire for big paydays:
• First, give employers 90 days to cure underlying issues before a suit can continue. Faced with a similar deluge of lawsuits over construction defects a decade ago, the Legislature gave homebuilders an opportunity to make repairs before they could be sued, so there is a precedent.
• Cap attorney’s fees so that in cases where significant violations occurred that the employees get more of the settlements.
• And make some common-sense reforms in those 800 pages of labor laws. Give employees the right to take their lunch break when they want to and allow companies to include the name they do business as on paystubs. The state should focus on situations that really harm employees.
Successful economies need an ongoing economic engine to create wealth. Here in California, family businesses play a major role making California the fifth-largest economy in the world. But our state’s economic engine is being choked back by a whole host of state laws and regulations, so the Legislature should at least take some modest steps to strengthen our economy. PAGA reform would be a good place to start.