PAGA settlements and the unintended consequences on California workers

Along with movie production and technology, California now leads the nation in mass layoffs. The numbers are stark, California has currently laid off more than three times as many employees in mass layoffs this year than Texas, America’s second largest state. Recent research produced by the California Business and Industrial Alliance points to the culprit: the Private Attorneys General Act (PAGA). 

PAGA allows employees to bring lawsuits against employers on behalf of themselves, other employees, or even the state of California. While originally conceived to protect employees working in under-the-table businesses, PAGA lawsuits have significantly increased since the law was implemented and target regular businesses, often for minor offenses. 

Another failure of PAGA to benefit employees is revealed by looking at the impact of PAGA lawsuits on the viability of legitimate businesses and the job security of their employees. According to research by the California Business and Industrial Alliance, employers subjected to PAGA lawsuits were far more likely than employers not sued to issue a WARN notice – a notice signifying a mass layoff of 50 or more employees, or a company going out of business.

The numbers are clear. Employers subject to a PAGA settlement were 258 times more likely to issue a WARN notice in fiscal year 2021/2022, and 126 times more likely to issue a WARN notice in fiscal year 2022/2023. 

The average PAGA settlement cost for each of these employers was almost $4 million in the past fiscal year, with an average attorney fee of over $1 million. In other words, an unexpected cost of approximately $5 million for the businesses impacted – something that would have a disastrous effect on all but the biggest corporations. 

In the 2022-2023 fiscal year, employers endured a major upsurge in PAGA lawsuits compared to the previous year. Subsequently, the number of employees subjected to WARN notices increased from 1 million to a whopping 3 million – and there is no sign of this slowing down anytime soon.

Outside of these raw numbers, PAGA causes a number of other issues. 

The overflow of minor PAGA lawsuits, some of which can be as small as a typo on a paystub, drowns out legitimate claims of serious labor law violations. Why? Due to the threat of hefty fines, employers are now more likely to settle PAGA lawsuits even if they aren’t legitimate. As a result, employees who have actually been harmed by their workplace are less likely to get justice. 

Who benefits the most from PAGA? The private trial lawyers who have been given a greenlight to pick through California’s thousand-page labor law code in search of any minor infraction to turn into a meal ticket. Over the last six years, private trial lawyers have exploited California employers through PAGA settlements to the tune of $8 billion. In truth, PAGA lawsuits are now driven more by the pursuit of personal gain – not genuine concerns about labor law violations.

The high cost of PAGA lawsuits has directly forced many businesses to cut back on hiring and investment. This has had a detrimental impact on California’s economy. In fact, a study by the California Chamber of Commerce found that PAGA has cost the state’s economy billions of dollars. 

Unsurprisingly, businesses are fleeing the state in droves in search of more hospitable business climates, taking tens of thousands of jobs with them. Even the iconic Jamba Juice has taken the plunge and left California. 

PAGA may once have been a well-intentioned law, designed to give recourse for people who fall through the cracks of labor legislation, but after almost 20 years it is clear that the law has morphed far beyond its original intent. This new study is just one more piece of evidence that the law simply isn’t a good fit for California. 

As Californians deal with a high tax burden, an uninhabitable business environment, and flight of both capital and residents, the last thing we need is an ever-increasing flood of minor lawsuits that enrich lawyers at the expense of employers and employees. 

Tom Manzo is the president and founder of the California Business and Industrial Alliance