PAGA in Review

A recent study [1]reviewed the California Private Attorneys General Act (PAGA) of 2004 and provided outcomes and recommendations. PAGA took effect in 2004 in California to provide employees a means of directly suing their employers when alleging wage and hour violations. Prior to PAGA, the California Division of Labor Standards Enforcement (DLSE) enforced wage and hour violations on behalf of aggrieved employees.

PAGA created a new set of penalties, which allow employees to collect 25% of them and the state to collect the remaining 75%. Added revenue to the State may well have been a critical inducement to acceptance of PAGA by the legislature and the governor, and the potential for increased recovery created an incentive for employees and their lawyers to choose the court option.

Before bringing a PAGA action in court, claimants are only required to first give notice to the Labor and Workforce Development Agency (LWDA) and await the LWDA’s determination as to whether it will process the claim or allow the claim to proceed to a lawsuit. In the vast majority of cases, the LWDA does not accept the claim for processing.

Available data indicates that the current average payment a worker receives from an LWDA-decided PAGA case is 95% greater than for a PAGA case filed with a court. Even though workers are receiving higher awards from LWDA-decided cases, employers are paying out 60% less per award. On average employers pay $504,000 per LWDA-decided case and $1,232,000 per PAGA court case.

LWDA-decided cases do not award attorneys’ fees, which contributes significantly to the huge difference in award amounts between LWDA-decided cases and PAGA court cases. Attorneys who file PAGA cases with a court are compensated with fees that represent 33% or more of the workers’ total recovery, coming to more than $405,000 per case on average.

Delays in obtaining recoveries are substantial. Indications are that workers wait on average for 15-months for their awards from LWDA-decided cases, and nearly two years for their awards from PAGA court cases.

The study found that the current procedure by which LWDA resolves PAGA claims, while apparently more successful for employees than claim resolution by court litigation, can likely be improved by reducing unnecessary bureaucracy and reducing the time taken to process claims. The study proposes that an objective should be an expedited administrative process that delivers a fair result in a short period of time and provides sufficient transparency to track outcomes.

Letters of intent to file a lawsuit are used to frighten employers into settling before a PAGA lawsuit is filed. These settlements are not reviewed by or reported to either LWDA or the courts. For this reason, the public will never have information on what workers receive, what the workers’ lawyers receive, or what employers pay in connection with these settlements. Most importantly, there is nothing to assure that workers have received what they are entitled to from these settlements. The study further forecasted that the recent signing into law of AB 5 will likely dramatically expand actions threatened or filed pursuant to PAGA.