Enacted in 2004, California’s Private Attorneys General Act (PAGA) was designed by the California Legislature to offer financial incentives to private individuals to enforce state labor laws by recovering certain civil penalties. Aggrieved employees can seek recovery of civil penalties for Labor Code violations they suffered, in addition to penalties for all Labor Code violations suffered by other employees in a representative action, as long as the employee suffered by at least one violation. PAGA permits the aggrieved employees to collect civil penalties for Labor Code violations previously recoverable only by the Labor Commissioner. PAGA claims are representative actions, which are distinct from class actions.
1. Average PAGA settlement: $1.1 million
With penalties adding up to potentially huge amounts for small technical violations, employers are often times faced with choosing between the uncertainty of litigation or settling PAGA claims. A report, California Private Attorneys General Act of 2004, Outcomes and Recommendations by Baker & Welsh, LLC, states that the average settlement of a PAGA case is over $1 million. In addition, Los Angeles County and the rest of the Los Angeles Basis make up 46.4% of all PAGA case settlements. The Bay Area is second, with about 16% of PAGA case settlements based on location.
2. Potential penalties for employer with just 100 employees: $4 million
PAGA provides penalties on a per pay period basis for each aggrieved employee. The employee may recover the penalty specified by the Labor Code, and if the Labor Code does not specify a penalty, PAGA sets default penalties of $100 per employee per pay period for the first violation, and $200 per pay period per employee for a subsequent violation. 75% of the collected penalties must be distributed to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations, and a prevailing plaintiff is entitled to their attorney’s fees and costs.
3. Amount of insurance coverage for PAGA claims: likely zero
Many employers believe that they have protection from PAGA and other wage and hour claims through purchasing employment practices liability insurance (EPLI). However, most, if not all insurance companies exclude coverage of PAGA and wage and hour cases from coverage. Some insurance companies may provide a small amount to pay to defend PAGA cases, but the liability for these types of claims usually falls directly on the employer.
4. Number of PAGA notices are on the rise: forecasted to exceed 7,000 in 2023
As this chart sets forth, the number of PAGA notices filed with the Labor & Workforce Development Agency (LWDA) are climbing:
As the trend line indicates, the number of PAGA filings will likely continue to increase unless there is a significant development in the case law or the initiative that will appear on the November 2024 ballot passes that would replace PAGA.
5. Average PAGA case length: 2 years
On average, it takes nearly 2 years for PAGA cases to be resolved given the complexity of the issues raised in PAGA cases and the shear number of employees that are implicated as the named plaintiff can bring claims for all employees who worked for the employer for one year from the date of the filing. See California Private Attorneys General Act of 2004, Outcomes and Recommendations.
What can California employers do to protect themselves?
Employers should consider implementing arbitration agreements with class action and PAGA waivers that would require the employee to bring any claim against the employer in their individual capacity, and not as a class action or a PAGA representative action. The issue of whether employers can implement arbitration agreements with PAGA waivers is currently being reviewed by the California Supreme Court in Adolph v. Uber Technologies, Inc., and it is expected that the Court will issue a decision before the end of June 2023. In addition, our prior article discusses steps employers can take to defend against PAGA cases here.