Much has been made about the recent, hurried legislation to amend the Private Attorneys General Act (“PAGA”) in order to take the Fair Pay and Employer Accountability Act (“FPEAA”) off the California ballot this November.
If passed by California voters, the FPEAA would have repealed PAGA and replaced it with a new statute and a new process that were more employer-friendly -- and more employee friendly.
(The idea of a ballot initiative to repeal or create laws may sound very unusual to anyone outside of California. But California permits this kind of mob rule, for better or worse, so long as enough signatures are gathered and verified to qualify to be placed on the ballot.)
For all of the celebration about how these PAGA amendments will benefit employers, the PAGA amendments remind me of nothing so much as New Coke.
You don’t know about New Coke, do you?
You see, back in 1985, Coca-Cola announced that it was changing the longtime formula for its soda and replacing it with a new formula that everyone would love even more. There was much excitement about it. (Keep in mind that this was before the internet, smartphones, texting, streaming, etc.) The launch of the new version of the soda was covered in the mainstream media, and people just couldn’t wait. They actually lined up outside stores to be the first to get their hands on it.
And then New Coke was launched.
After being told how much they were going to love it, few people actually did. It wasn’t what they were expecting. It was, in a word, disappointing. And, quickly, the company reversed course, putting an end to New Coke era after it had barely started and rushing the time-tested formula back on the shelves (rebranded as “Classic Coke”).
Employers have been told they are going to love the 2024 PAGA amendments.
But have you given them a try?
Have you had a sip?
They’re New Coke.
(In the interests of full disclosure, please know that I love Coke – or, more precisely, diet Coke – and drink much more of it than my doctor believes is healthy. Fact: I’m drinking one as I type this.)
It’s A Trap!
One of the biggest issues with the PAGA amendments is that they have created a trap for employers, and plaintiffs’ counsel are surely waiting to see if employers walk right into it.
Some will.
What is that trap?
The “cure” provisions.
Yes, the PAGA amendments allow employers to “cure” some alleged Labor Code violations and reduce the potential PAGA exposure if they do.
Sounds great, right?
But let’s think about it.
If an employer “cures” one issue, it may be handing plaintiff’s counsel new claims that may be difficult, if not impossible, to defend – and even more valuable.
In fact, not only are they likely to pursue those new claims, but plaintiff’s counsel are likely to argue that by “curing” one issue, the employer has admitted liability on the new claims.
Let me give you an example.
Let’s say that an employee alleges in a PAGA letter that an employer did not pay overtime at the proper rate. And let’s say that the employer investigates and, although it believes its position was lawful, it decides to “cure” the issue by paying employees retroactively for the small amounts they may have been underpaid.
Sounds like a reasonable approach, doesn’t it?
But by doing that, the employer has arguably handed every former employee a claim for 30 days of waiting time penalties under Labor Code section 203 on the grounds that those employees were not paid all wages due at the end of their employment.
So by paying employees a small amount to “cure” alleged overtime violations, the employer has handed them a much more valuable claim – 30 days of pay.
(Yes, the PAGA amendments provide that employees cannot collect “civil penalties” in some “cure” situations, but waiting time penalties have been held to be “statutory penalties,” not “civil penalties.” Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365. And most plaintiffs’ counsel are aware of that.)
I don’t mean to suggest that an employer who investigates claims and concludes it may not have complied with the law should do nothing.
I’m saying that it should be smart about what it does.
And handing plaintiff’s counsel waiting time claims for dozens, hundreds or thousands of employees -- claims that could be impossible to defend once the employer “cures” -- doesn’t seem smart.
But there’s another trap.
Plaintiffs’ counsel don’t just file just PAGA actions to pursue alleged Labor Code violations. They also file class actions. And, if an unfair competition claim is included, the statute of limitations for those proposed class claims is generally 4 years.
If an employer “cures” an issue for any period of time less than 4 years, is it not also handing plaintiffs’ counsel class claims for the remaining period of time? And, unless there was a change in practices, is it not also arguably admitting liability for that additional period of time, too?
I have two words for you:
New Coke.
Cure What?
The much-ballyhooed “cure” provisions of the PAGA amendments may prove to be even less valuable when one considers that pre-suit PAGA letters are often just boilerplate letters used by plaintiffs’ counsel, changing the names of the parties, but alleging in vague and conclusory fashion that an employer violated various Labor Code provisions, with no details at all.
With no details, how is an employer supposed to know what to investigate to even consider whether there is anything to “cure”?
It typically doesn’t.
For instance, a vague allegation in a PAGA letter that employees do not receive compliant rest periods does not give the employer any foundation to conduct a meaningful investigation. It needs factual allegations – when were employees allegedly prevented from taking breaks, how were they prevented from taking them, and by whom? Otherwise, the employer could only investigate by conducting lengthy interviews of each and every employee.
Perhaps this would have been different if the PAGA amendments included a simple requirement that employees must include sufficient factual details in their PAGA letters to allow employers to conduct such an investigation. But the amendments do not require that.
And without that requirement, the “cure” provision will likely be meaningless in most cases.
Employers won’t be able to conduct a meaningful investigation to even determine if there is anything to “cure.”
In fact, in this way, employees and their counsel have an incentive to continue to make vague and conclusory allegations in their PAGA letters to preclude a meaningful investigation and avoid reduced penalties from a “cure.”
Standing And Typicality Issues Will Be Addressed By Adding More Plaintiffs
You have probably read much about the fact that, similar to a class action plaintiff, the PAGA amendments provide that the named plaintiff in a PAGA action must actually have suffered each violation that he or she alleges in the lawsuit.
For example, an employee who only allegedly suffered a rest period violation cannot bring PAGA claims for other alleged violations on behalf of other employees, such as unpaid wages or meal period violations.
While this appears at first to be a significant development to undo case law that allowed a PAGA plaintiff with any claim to pursue every claim that others had allegedly suffered, even if he or she had not, it ultimately is likely to have very little effect on litigation.
First, the PAGA amendments do not expressly require the plaintiff to plead when he or she suffered an alleged violation (although employers would be wise to challenge pleadings on such grounds going forward). Accordingly, there is nothing preventing plaintiffs’ counsel from still filing “kitchen sink” PAGA actions.
Second, this change does little more than encourage plaintiffs’ counsel to use several named plaintiffs, instead of a single one, in order to cover all of the claims -- just as they do in class actions – and to demand production of the class list early in the case so they can seek other employees to add as named plaintiffs.
Potential Exposure Will Increase In Virtually Every Case, Not Decrease
Absent continued unlawful conduct after a court or agency determined an employer had violated the law that would entitle employees to up to $200 per pay period (the “subsequent violation” rate), PAGA penalties generally were capped at $100 per pay period pre-amendment.
The PAGA amendment now provide that employees can recover up to $200 per pay period for conduct that was “malicious, fraudulent, or oppressive.”
What does that mean?
Practically speaking, it means that in virtually every new PAGA action, employees and their counsel will allege that the employer’s alleged conduct was “malicious, fraudulent, or oppressive.”
It literally takes seconds to type that allegation into a complaint and, in so doing, increase the potential recovery from $100 per pay period to $200.
In other words, employees and their counsel are likely now to seek twice as much as they had sought before the amendments.
It means that in virtually every mediation – many of these PAGA cases settle -- employees and their counsel are likely now to seek twice as much as they would have sought before the amendments.
This is good for employers?
Of course not.
It’s New Coke.
Why Would Plaintiffs’ Counsel File Fewer PAGA Actions?
You have likely heard that somehow these amendments are going to lead to fewer PAGA actions.
But there is nothing in the PAGA amendments that is likely to change the number of PAGA actions filed by the plaintiffs’ bar. Absolutely nothing.
In fact, the increased $200 penalty for conduct that was “malicious, fraudulent, or oppressive” might lead to an increase in the number of PAGA actions filed, not a decrease.
Was PAGA Going To Be Repealed In November?
We will never know if California voters would have repealed PAGA and replaced it with the FPEAA in November.
I, for one, think it would have. And I am not the only one.
(The key would have been whether voters understood that employees themselves could recover more under the FPEAA than the small amounts employees tend to recover in PAGA actions, where the plaintiffs’ counsel take a huge piece of the pie right up front.)
With the FPEAA no longer on the ballot because of the PAGA amendments, employers will continue to face PAGA actions with the same frequency as before, with the only changes being multiple named plaintiffs in many cases and increased potential exposure.
For employers, that’s New Coke.
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