Opinion: Manipulative lawsuits hurt California workers and small businesses. Here’s a solution

By: Barry Jardini

California’s Private Attorneys General Act (PAGA) was originally passed to help workers file claims for labor law violations. Unfortunately, the law is being grossly manipulated, with attorneys filing shakedown-style lawsuits to benefit themselves at the expense of workers, non-profits and small businesses.

Enacted in 2004, the act allows private individuals to file lawsuits against employers alleging Labor Code violations. A state system to address worker complaints — the Labor Workforce Development Agency — already existed at the time and still does today, but the agency was understaffed and under-resourced in the early 2000s.

The statute also added steep penalties for employers who violated the Labor Code, including minor infractions, even when a worker did not lose wages and was not harmed. In doing so, PAGA’s penalty multiplier effect created an opening for unscrupulous lawyers to line their pockets. This money-making opportunity comes at the expense of the workers they are supposed to represent and businesses that are failing under the crush of legal expenses and settlements.

As executive director of California Disability Services Association, which advocates for community-based organizations that support people with intellectual and developmental disabilities, I’ve seen how PAGA can shatter a non-profit’s ability to operate.

One of my members, a non-profit that provides intellectual and development disability services in Northern California, was hit with a PAGA claim over “Inc.” being incorrectly included on pay stubs. Even though employees deposited checks and received their wages, an attorney filed the claim, and the non-profit was forced to settle for $550,000. The plaintiff’s attorneys walked away with $200,000 from the settlement, and the workers received $61.18 each.

The problem becomes even more devastating considering that the community-based organizations we represent are exclusively funded through state and matching federal funds. The $550,000 my member spent to settle the lawsuit came at the expense of both taxpayers and people with disabilities.

Unable to afford to fight these claims, another non-profit member that operates in Southern California settled a PAGA lawsuit for $335,000. The plaintiffs’ attorneys received $195,000, while workers received less than one hundred dollars each. The nonprofit was forced into a payment plan, which will affect them for years to come.

Instead of being able to focus on individuals with intellectual and developmental disabilities, our members and many other organizations have a target on their backs, with plaintiffs’ attorneys looking to cash in on funds received from the state to provide services.

PAGA’s flaws demand attention and reform. Resolving Labor Code violations via the existing state process and agency would better serve workers and employers. A recent report found that these claims take twice as long to resolve and provide workers only one-third of the compensation compared to claims reviewed by regulators.

Critics of repealing the act argue that the state’s Labor Workforce Development Agency and the various arms within the department tasked with enforcing the state’s Labor Code are under-resourced and understaffed. Meanwhile, the Labor Workforce Development Agency has approximately $250 million available that can be used to hire more staff to adjudicate claims and ensure employers mistreating their employees are held accountable.

A legislative compromise is being discussed to address myriad problems with the act. I hope it will be successful. If not, I will be supporting the qualified November ballot measure which would introduce reforms, eliminating the class-action style approach to solving labor disputes and require the Division of Labor Standards Enforcement to resolve claims. This means that employment claims would not require workers to have a costly attorney, and workers would keep 100% of any settlement they receive.

The measure would hold bad actors accountable and double statutory and civil penalties for employers who are willfully violating the law.

This lawsuit-first approach is failing California workers, non-profits and small businesses. Policymakers have the opportunity to reform PAGA as a tool to promote fairness and justice in the workplace while balancing the scales of enforcement to ensure workers receive what they are rightfully owed without unduly burdening businesses.

Barry Jardini is the executive director of the California Disability Services Association, a statewide association representing more than 100 community-based organizations that support and empower people with intellectual and developmental disabilities and their families.

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