Imagine that a winery tasting room employee—let’s call him Tim—missed a few lunch breaks because he was the only server on duty during busy times of day. His employer didn’t seem to notice he was working through breaks, so Tim spoke up, asking his boss to remedy the situation.
But the complaints were brushed aside, and the problem was not resolved—so Tim reached out to an attorney.
The attorney offered to assist Tim in filing a notice with the Private Attorneys General Act (PAGA), going on record that his employer was violating the state labor code regarding breaks.
The notice gave the state labor agency the go-ahead to investigate the alleged violations, likely leading to the winery facing a costly settlement agreement.
Since its passage by the state legislature in 2004, the California Private Attorneys General Act (PAGA) has seen labor code violation claims and resulting settlements (or litigation) grow exponentially—a potential boon for plaintiffs’ labor attorneys looking for easy settlement dollars and a potential nightmare for businesses unaware of the minefield of labor violations they need to navigate.
“(PAGA) causes an enormous amount of angst for employers, because sometimes they have no idea they are in violation of the labor code,” explains Bill Vick.
Designed for employees to sue
Vick’s career background is in financial services, but he is also a member of North Bay Trusted Business Advice (NBTBA), a group made up of attorneys––including the two attorneys interviewed for this article––accountants, insurance professionals and others. Vick is also a chairperson in Sonoma County for Vistage, a worldwide CEO peer group led by former business leaders to grow revenue, profitability and promote professional and personal development.
The professionals in the North Bay Trusted Business Advice group meet regularly to help simplify various challenges local CEOs face when managing their businesses. PAGA is one of those challenges many CEOs face head-on to keep their businesses compliant and to avoid litigation. The group even created a questionnaire for employers to see if they are in compliance with the California Labor Code [see sidebar].
PAGA was signed into law more than 20 years ago and underwent reforms, for better or worse, last year. It was first created, according to attorney Kari Brown, to help the California Attorney General’s office in the prosecution of labor code claims. “The AG’s office has the responsibility of enforcing these violations, but it was unable to handle the volume of claims,” says Brown, who specializes in employment law for Spaulding McCullough & Tansil in Santa Rosa. “So the legislature created the law to essentially deputize employees to stand in the shoes of the AG and sue.”
Deterring unlawful conduct
The California Labor & Workforce Development Agency (LWDA) was doing the investigations of labor code complaints, but it was underfunded. “That’s why PAGA was created,” says attorney Samantha Pungprakeati, who focuses on employment law for North Bay-based Carle Mackie Power & Ross. “LWDA is still free to do their own audits and collect penalties, but law firms filing on their behalf send the LWDA 75% of whatever judgment is adjudicated.”
“Deep down in the labor code were civil penalties that were also available if the state came to the employer to investigate and audit to see if they were following the law, but those penalties were not being collected. Through PAGA an employee can get 25% of the settlement as a finder’s fee [from a PAGA lawsuit] and have to turn the remaining 75% over to the state.”
According to the state labor agency, civil penalties assessed and collected under PAGA “help deter unlawful conduct and encourage compliance with labor protections.” The labor agency gives the Labor Commissioner’s Office responsibility over the investigation of PAGA notices alleging wage and hour violations, and Cal/OSHA investigates PAGA notices that raise health and safety violations.” (While government employers are not subject to PAGA lawsuits for violations of the labor code, private employers are.)
In October 2024, the Labor & Workforce Development Agency created a separate PAGA Unit to administer the pre-litigation early resolution “cure” procedures enacted by the PAGA reforms—a chance for the company to remedy or correct any violations prior to litigation. “The unit reviews procedures and conducts conferences for small-employer cure proceedings, and it reviews cure notices by employers of any size that involve alleged wage statement violations,” says the agency.
Plenty of employees sue their employer when they feel they are not being treated fairly. Hence, PAGA lawsuits have grown significantly, and the most common PAGA complaints are about meal and rest breaks, says Pungprakeati. “Unpaid time is another very common complaint, and there are several others that rank right up there,” adds Brown.
‘A new version of ambulance chasers’
The PAGA process can be quite lucrative for certain law firms, says Pungprakeati. “The state now has a website that tracks all the PAGA filings [cabia.org/research-data/paga-summary/], and a pro-business alliance uses this information to organize the top 10 law firms that have filed more than 1,000 PAGA lawsuits. The only people benefiting from these lawsuits are the plaintiffs’ attorneys, the 10 top firms that are filing 10 suits a day, every day.” (Those top 10 firms currently listed on the Cabia website are all located in Southern California.)
The average cost for one of these lawsuits runs about $1.118 million, says Vick. “So this is an incentive for attorneys that creates a new version of ambulance chasers.”
In 2021, an attempt was made to repeal PAGA with a ballot initiative called the California Fair Play and Employer Accountability Act. Ultimately the initiative was withdrawn from the ballot after Gov. Gavin Newsom made a deal with business and labor groups to reform PAGA. Last year’s reform was an effort by the legislature to show that PAGA actions have gotten out of hand, and it was designed to try to get a handle on the scope of damages that could be pursued, according to Pungprakeati. “We were excited about these reforms being passed last year in an effort to reduce PAGA lawsuits that are being filed. Reform was meant to curtail it.”
Being in compliance with the labor code should be immensely important to employers. “If they make sure their practices are in compliance, they can stop the bleeding,” says Brown. “We can get in there and efficiently diagnose the issues and save them from major exposure.”
Costs of litigation could bankrupt companies
California is the most protected state in the nation for employees, says Pungprakeati, and the legislature adds more and more laws every year. “A smart employer will have counsel on hand who they can go to for those difficult questions, along with smart human resources professionals.”
There is a large value to settle instead of trying to defend oneself in litigation, she adds. “It’s going to cost employers to not only pay damages but also pay their attorney fees, along with the plaintiff’s attorney fees if they go through trial and are found liable. If an employer pushes this kind of litigation into trial, they can be facing potentially hundreds of thousands of dollars in attorney fees. We have to explain all this to our clients, and they are gobsmacked by the realities of the cost of litigation.”
Brown says one of her clients made one technical mistake—not out of any malicious intent—that triggered a PAGA action. “And the settlement figure demanded by the plaintiff in that case was a nonfeasible amount for the client. What’s ironic is the employee who is trying to pursue these employee rights may make hundreds of their fellow employees lose their jobs if a company goes under because of the cost of litigation.”
For employers, says Pungprakeati, the tactical use of an attorney can avoid huge defense fees and liability down the road. “Things like meals and rest breaks—that’s a good one for employers to immediately focus on to get right.”