PAGA Reform Should Top Lawmakers’ New Year’s Resolutions

The COVID-19 vaccine has us hopeful for a return to “normal” in the New Year. Unfortunately, many of California’s small businesses may not be around to see it.

In addition to mandated shutdowns, Golden State employers are being financially crippled by frivolous lawsuits filed under the Private Attorneys General Act (PAGA). PAGA is a unique California law that allows aggrieved employees to file suit against their employer for even a small or accidental violation of California’s more than 1,100-page labor law digest. These lawsuits, while lucrative for the state’s trial attorneys, often cost businesses thousands, if not millions, in settlement and legal fees.

Take Lars Viklund, for example. For years, Lars invested in his community by revitalizing small but historic hotels, including the Del Marcos Hotel in Palm Springs. The 17-room establishment even had its Class 1 historic site designation made official by the Palm Springs City Council in 2012. All of his properties are on the smaller side — typically between 10-18 rooms. But they each employ dozens of staff members who rely on the hotels for their livelihood.

Like many in the hospitality industry, Lars has been devastated by the COVID-19 pandemic and the resulting lockdowns. This financial strain has only been exacerbated by an expensive and drawn-out legal battle.

Two years ago, Lars was sued by two former employees who alleged that they never got their lunch breaks. The trial attorneys dragged the process out as long as possible, stringing Lars along while the legal fees piled up. To end the lawsuit, Lars offered to settle for $50,000, but the attorneys refused. Lars had already spent $200,000 fighting the lawsuit and been forced to lay off some of his employees in the process. When he knew he’d be facing an additional $200,000 in legal fees, Lars made the difficult decision to sell one of his hotels.

Sadly, Lars’ story is not unique. There are thousands of PAGA lawsuits filed each year that devastate small and medium size businesses in our state. Even during the unprecedented coronavirus pandemic, trial lawyers showed little mercy for our front-line businesses. Over the last several months, PAGA suits have been filed against hospitals, nursing homes, and in-home care services. That’s not to mention the lawsuits filed against already hard-hit industries, including restaurants and hotels.

My organization, the California Business and Industrial Alliance (CABIA), urged Governor Newsom to toss a lifeline to businesses during this trying time by temporarily suspending PAGA. Unfortunately, the state ignored our request.

The reality is this law does little to help employees, and everything to help unscrupulous trial attorneys get rich quick. In a typical PAGA case, the attorneys receive 35 percent of the settlement. Both the mediator and the state receive two percent. Then, the remainder is split between the plaintiffs, who are often part of a class-action suit. When the money is divvied up, employees often walk away with little more than spare change while the attorneys rake in millions.

With a vaccine already making its way to front-line workers, there is finally a light at the end of the tunnel. But businesses need help making it through to the other side. Reforming this harmful law is one way our lawmakers can minimize the damage that has already been done, and help California’s businesses get back on their feet in 2021.