The problem with the Private Attorneys General Act on small business was made clear in a recent article in the San Fernando Valley Business Journal. It points to an obvious solution to prevent the crippling of small businesses while at the same time supporting labor laws: give businesses a fair amount of time to fix any problems uncovered.

In many cases, the problems that are challenging the businesses are small and unintentional omissions in following the letter of the law.

The article by reporter Stephanie Henkel points out a glaring circumstance.

Two former employees of a Van Nuys event rental company sought out a lawyer to sue over being terminated. The lawyer, using the Private Attorneys General Act (PAGA), did more than go after the company over the termination of two employees. Eventually, a suit was filed for $29 million dollars over alleged missed lunch breaks.

The company owner said in 35 years of business he never received one complaint about lunch or missing breaks—but he didn’t have the records to prove it. To avoid the $29 million lawsuit, the company agreed to settle for $1.2 million dollars.

Because the lawsuit settlement came about due to a lack of paperwork, the business now has to spend additional monies to add attorneys as well as mechanisms to avoid future pitfalls.

It would be better if any incidental errors could be remedied quickly without potentially damaging a business with heavy fines, which ultimately costs employees if businesses have to cut back to pay the fines.

As the San Fernando Valley Business Journal reporter wrote, “The law was enacted to punish negligent employers who violate California’s Labor Code, but it has created a financial incentive for plaintiff attorneys to seek out PAGA cases to potentially win millions in a class action suit or settlement.”

The Labor and Workforce Development Agency is collecting data on PAGA lawsuits but has not pushed for any reforms in the law.

Valley Industry and Commerce Association (VICA) president Stuart Waldman is quoted in the article: “Many business regulations include a “right to cure” clause, meaning that once a violation is identified, the employer has an opportunity to fix the problem before facing financial penalties. But “under PAGA there is no right to cure.”

“The PAGA law has created a Wild West atmosphere,” Waldman said. “Businesses may have minor incidental violations, like not having the proper wage and hour sign (posted), who can get substantially fined or in many cases end up settling with a former and disgruntled employee.”

The problem of PAGA lawsuits threatening small businesses is growing and solutions to deal with incidental violations are obvious. The legislature, to show its support for the state’s valuable small businesses, should create legislation giving small businesses the right to cure minor problems instead of putting businesses at risk for financial ruin.