Elon Musk made headlines with his recent purchase of social media giant Twitter. Whether or not you’re a fan, the company’s growing pains have shed a much-needed light on one of California’s worst labor laws: the Private Attorneys General Act, or PAGA.
After buying Twitter, Musk spared no time enacting an aggressive plan to cut costs for the debt-ridden company. This included laying off about half of the social media company’s employees.
As a result, Twitter has already had at least two PAGA lawsuits filed against it, with more almost certainly to come. And those are in addition to a class-action complaint that argues the layoffs violate the Worker Adjustment and Retraining Act, or WARN. Unsurprisingly, the same out-of-state lawyer is behind all of these lawsuits.
Unlike WARN violations, PAGA is specific to California. In fact, it’s one of the Golden State’s most harmful laws that opens any employer to frivolous lawsuits — not just big-time companies like Twitter. Business owners can face hundreds of thousands of dollars in fines and legal fees for even an accidental violation of our state’s over 1,000-page labor code.
Some of these so-called violations can be as small as a typo on a paystub. But that doesn’t stop greedy trial attorneys from jumping at the chance to earn big, even while aggrieved employees typically get little.
As a company that’s $13 billion in debt, Twitter may struggle to withstand the legal storm brought on by PAGA — potentially leading to even more layoffs. But for many businesses across the state, PAGA can be a death sentence.
An analysis from my organization the California Business and Industrial Alliance suggests that PAGA-related expenses force employers to cut labor costs, including jobs, or shutter for good. In fact, we found that between 2014 and 2020, more than 100 midsize or larger companies with operations in California laid off a substantial number of employees or closed entirely within 18 months of being hit with a PAGA filing.
Since small businesses typically don’t file layoff data with the state, it’s hard to know PAGA’s true impact on our most vulnerable employers. But mom-and-pop shops operating in the black can be financially decimated by just one PAGA suit.
What’s more, the employees these lawsuits claim to help are usually left with just a fraction of what the trial attorneys make out with. According to a recent study, PAGA attorneys kept 33% or more of a worker’s total recovery and averaged $372,000 per case. Meanwhile, workers averaged about $1,300 from PAGA cases.
With these results, it’s no wonder Musk moved Tesla to Texas to avoid California’s backwards labor laws.
As Twitter and other major tech companies continue to downsize, state legislators need to get serious about job creation. Reforming PAGA should be at the top of their list.
Tom Manzo is the president and founder of the California Business and Industrial Alliance.