A courtroom gavel. Photo via Wikimedia Commons

An issue gaining prominence in the business community — destructive lawsuits filed against businesses and other entities under the Private Attorneys General Act, known as PAGA — echo a California political and policy upheaval from nearly 20 years ago, the major effort to reform the state’s workers’ compensation system, in which I played a role. 

The goal of the PAGA law was to set up an external mechanism outside the state Division of Labor Standards Enforcement to allow employees to seek redress for labor code violations shortchanging workers of proper remuneration. However, over the past two decades a host of attorneys have discovered a quick payday by threatening businesses and even nonprofit entities with big-dollar lawsuits. Executives often choose to settle the threat rather than face the uncertainty of court action. 

Often minor violations of the complex 1,000-page labor code spur expensive lawsuits that threaten to close down businesses. 

As occurred with the workers’ compensation revolt, the business community is joining together to support reforms to the Private Attorneys General Act. The business ideas would relieve financial pressures, block threatening lawsuits and also improve the outcomes of employees who seek recompense through state agencies responsible for workers’ welfare.

report just issued by the California Business and Industrial Alliance indicates that labor matters adjudicated by the Labor Workforce and Development Agency compared to cases that are PAGA initiated finds that employees get nearly twice the compensation, employers costs are halved and cases settle in shorter time. It’s a win for all parties — except the lawyers. The business plan amounts to increasing the public agencies efforts in dealing with labor actions while reducing the impact of private PAGA lawsuits.

While the workers’ comp threat was all-encompassing to the business community, the growing Private Attorneys General Act threat is energizing the business community to promote change before matters deteriorate, especially for businesses as they try to climb out of the pandemic induced ditch. 

The concern and determination by business to gain changes to the PAGA law reflect the workers’ comp situation in the early 2000s. 

A desperate business community suffering from drastically increasing workers’ comp fees saw out-of-state business recruiters swooping down on businesses like vultures to steal companies away with the lure of a fairer workers comp system in other states. The California Chamber of Commerce broke a tradition of non-gubernatorial endorsements and endorsed Arnold Schwarzenegger in the recall campaign of 2003 in hopes he would relieve the workers’ comp problem. 

Under the shadow of another gubernatorial recall, the business community is appealing to the governor and the Legislature to fix the broken PAGA system. If the Legislature doesn’t make reforms, talk of a potential initiative is getting louder. 

Which brings me back to my role in the workers’ comp change. As the head of a small business group, I was a proponent of a workers’ comp reform initiative. The measure was embraced by Gov. Schwarzenegger and used effectively by him in gaining his first major policy achievement — convincing the Legislature to adopt a negotiated statutory worker’s comp reform. At the time, many legislators acknowledged if it were not for the circulating initiative, they would not support the legislation. However, they did and the initiative was dropped.

The Legislature should act more expeditiously on the Private Attorneys General Act problem. 

A ballot fix for PAGA’s flaws could include some intriguing aspects. Not only should reform legislation include a “right to cure” errors — in other words, an opportunity for businesses to correct any minor errors of little consequence — but it could have wider implications. 

The threat of PAGA lawsuits has expanded with the controversial Assembly Bill 5 employee status law. Whether a worker is an employee or an independent contractor likely will open the door to a flood of PAGA lawsuits. An initiative might incorporate changes to AB 5 to prevent justifications for PAGA lawsuits related to the employee/independent contractor law. 

The Legislature will have an opportunity to fix the PAGA law that, while well-meaning, has spun out of control and threatened businesses and other organizations while not really helping the workers it intended to help. As the business community gathers support for reform, the history of the major workers’ compensation battle of 2004 is worth studying.

Joel Fox was co-publisher of FoxandHoundsDaily.com on California politics and is an adjunct professor at Pepperdine University’s Graduate School of Public Policy. He wrote this for CalMatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters.

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