Private Attorneys’ General Act (PAGA)

The original concept for PAGA was a simple one: due to California’s limited resources to enforce labor laws, the State wanted to encourage individual employees and their lawyers to do that enforcement work on their own.  In exchange, the State allows that employee, and all other “aggrieved employees” who suffered Labor Code violations, to share 35% of the civil penalties that ordinarily would have gone entirely to the State. As a way to incentivize lawyers to take PAGA cases and do this investigation work, the State requires the employer to pay the employee’s attorneys’ fees in addition to their own defense fees, plus all of the civil penalties as well.

PAGA deputizes every employee in the state to sue his or her employer in the name of the State of California and seek civil penalties and attorneys’ fees – not only for Labor Code violations suffered by that employee, but also for the Labor Code violations suffered by every other “aggrieved employee.”  There are several aspects of PAGA that make it particularly dangerous and costly for California employers:

• The employee who sues under PAGA is suing in a “representative capacity,” on behalf of the entire State of California. That employee is entitled to sue for Labor Code violations that she suffered, plus violations suffered by every other employee – even if the employee who sues didn’t suffer any violations herself.

• Most PAGA penalties are imposed per pay period, per employee.  A typical penalty is $100 for the first pay period violation and $200 for every pay period violation thereafter, per employee.  So, with 24 pay periods for most employers, one Labor Code violation for one employee results in penalties of $4,700.  Then, multiply that by the number of other violations discovered. Then, multiply that by the number of employees.  For a small business with “only” 20 employees, for example, where 14 violations were discovered, the civil penalties owed would be $4,700 X 20 employees X 14 violations, or $1,316,000.

• PAGA also requires the losing employer to pay the employee’s attorneys’ fees.  That could easily add another $50,000 to $500,000 (or more) depending on how complicated the PAGA claims are, how many employees are impacted, and how hard the employer fights.  The attorneys’ fees threat alone causes many employers to settle even flimsy PAGA claims quickly. One business group called PAGA an “unconstitutional tool of extortion.”

• A PAGA plaintiff is entitled to broad discovery rights to find out the identities of all other potentially “aggrieved employees”.  This means that a PAGA plaintiff can sue first and then force the employer to produce payroll records, personnel files, and other records that identify (a) the names and contact information for all other employees at the company, and (b) the Labor Code violations suffered by each and every one of those other employees.  Inevitably, this broad discovery right yields documents and corporate records that show still more Labor Code violations suffered by still more employees – and the PAGA penalty vortex begins.

• PAGA claims are tried before a judge, not a jury.  This is because PAGA claims are considered equitable in nature.  So-called “bench trials” are far less costly, less complicated, and less time-consuming for employees and their lawyers.  Thus, another potential hurdle has been removed, which creates more incentive for employees and their lawyers to bring PAGA claims in the first place.

• PAGA’s representative claims cannot be forced into arbitration, like other employment-related claims can be.  So, even if an employer makes all employees sign a mandatory arbitration agreement, the employee’s individual PAGA claims will be sent to arbitration pursuant to that signed agreement; however, the employer still faces a PAGA bench trial on the employee’s representative PAGA claims – that is, those being alleged on behalf of the State of California, a party that did not sign any arbitration agreement of course, for all other “aggrieved employees.”

Without question, PAGA claims are devastating to California employers. But there is hope. As PAGA claims have skyrocketed over the past few years, California courts have been issuing decisions at a furious pace, and some of those decisions have given employers some meaningful defenses to PAGA claims. In addition, as a result of a major PAGA reform law signed by the California Governor in 2024, employers who receive a PAGA claim notice can now limit their PAGA penalties – but only if they act quickly after receiving the notice.