The Threat of PAGA Claims for California Businesses

If you are a California employer, you know that staying in compliance with the state’s myriad employment requirements takes considerable work. What you may not know is that the state has a procedure that allows employees to file very broad lawsuits against their employers for alleged labor violations. This is referred to as a PAGA claim, referring to the Private Attorneys General Act that was passed in 2004. The passage of this act allowed employees to pursue claims against their employers that the state attorney general would otherwise pursue. A PAGA claim is a type of qui tam lawsuit that allows workers (and their attorneys) to collect damages by essentially prosecuting on the state’s behalf.  

How Does a PAGA Claim Work?

To allege a potential labor violation, the employee may file a PAGA claim online with the California Labor and Workforce Development Agency (LWDA). The employer is generally notified (and given an opportunity to respond), and the state has 65 days after the employee files to take its own actions against the employer. The statute of limitations to file a PAGA claim is one year after the alleged violation(s). While a PAGA claim shares some characteristics with class action lawsuits, there are some fundamental differences. 

Why Are PAGA Claims a Potential Problem For Business Owners?

The intention of PAGA was to bring attention to legitimate labor violations, but in practice this has become a lucrative way for a certain class of employment law attorney to shake down small to mid-sized businesses. All it takes to launch a PAGA claim is to find one employee willing to pay $75 and fill out a few forms to file a grievance. After that, the lawyer can scour a company’s records for violations pertaining to any employee because the pre-trial discovery for PAGA claims is broader than it is for class action lawsuits. 

Successful PAGA claims can result in up to $100 fine per violation, per employee, per pay period. Subsequent violations can be worth $200 or more. By law, 75 percent of the statutory damages go to the state, while 25 percent goes to the claimant (and their attorney). A single $100 fine may not sound so bad, but once an attorney has gone through all of a company’s records, those fines can add up quickly when multiplied by the number of employees and the number of pay periods. 

For that reason, some businesses are especially vulnerable to being targeted by PAGA sharks. Businesses with large workforces, especially companies like landscapers or healthcare providers that deploy their workers to various job sites where it is hard to monitor meal and rest breaks, are particularly at risk. While there’s no way to completely prevent PAGA claims, there are a few things you can do to help protect your business: 

  • Ensure employees are classified as such (and not misclassified as independent contractors);
  • Implement procedures for ensuring that employees are given breaks as required by state and federal law; and
  • Keep extensive records of worker pay, hours worked, terms of hire, and other employment documentation. 

Lastly, consult with a knowledgeable business attorney if you aren’t sure whether your workplace could withstand a PAGA attack on your business records. You also should seek advice if you don’t have any employees but are thinking about hiring some soon. Many California business owners find themselves in trouble because they simply didn’t know enough about the state’s employment laws when they first started up their business. The right lawyer will help make sure your company is on a solid legal footing, helping you avoid costly legal proceedings later on. Integrated General Counsel has helped many business owners solve their employment problems; let’s talk soon.