PAGA Problem Mirrors Workers Comp Before Reform of 2004

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

For the business community, the difficulties of the Private Attorneys General Act (PAGA) are similar to what business faced under the burden of workers compensation costs over a decade ago. Small businesses particularly had to cope with workers comp costs that stood at twice the national average threatening the viability of many establishments.

While workers comp more universally hit the business community, the threat of million dollar lawsuits over minor labor code infractions generated under the PAGA law is spreading throughout the business community, threatening businesses while offering little to workers.

Technical infractions or misunderstandings of the extensive labor code can result in million dollar lawsuits that threaten a business’s existence while rewarding employees little of the settlement dollars but enrich attorneys who bring the lawsuits.

Ironically, it was in 2004, the year Gov. Arnold Schwarzenegger signed a legislative workers comp reform that PAGA became law. The legislature reached a compromise with the Schwarzenegger Administration and passed legislation to ease the pain for business to avoid a workers comp reform ballot initiative (of which I was a co-proponent).

One problem relieved, another problem begins for business.

While we are not at the stage in which other state business development agencies advertise in California to lure businesses away as happened during the workers comp crisis, the business community is beginning to rally to the PAGA danger.

There has been talk of pursuing an initiative to reform PAGA and one new business organization, the California Business and Industrial Alliance, has been formed with a prime goal of fixing PAGA.

One vehicle to fix the problem was introduced by Assemblyman Vince Fong last week. Fong hails from Bakersfield, an area that seems targeted by attorneys seeking clients to take on PAGA lawsuits.

In a release, Fong cited one example of a Bakersfield business owner hit with “a $14.5 million lawsuit because he provided his employees with a bonus for working safely. The owner’s offense was not including the hourly bonus in the regular pay rate for calculating his employees’ overtime rate—a minor labor code requirement that could have easily been fixed without a multi-million lawsuit.”

Fong’s bill, AB 2016, would allow employers to cure any violation of the law before it turns into a debilitating lawsuit.

It would be best if the legislature understands the depth of the problem–how it hurts business without really helping employees–and does the job of reforming PAGA now.

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