California Governor Jerry Brown’s administration recently submitted a budget proposal to the California Legislature that would increase State oversight of Private Attorneys General Act (PAGA) claims and amend the PAGA statute accordingly.  The proposal has significant implications for the administration of PAGA claims going forward.

Background

PAGA permits current or former employees to sue for civil penalties for Labor Code violations that previously could only be assessed and collected by the State.  Before litigating a PAGA action in court, employees must first send written notice to the employer and the Labor and Workforce Development Agency (LWDA).  The LWDA then studies the alleged Labor Code violations and decides whether to investigate or cite the employer.  If the LWDA decides against pursuing the case, the employee may file a lawsuit on behalf of herself and other “aggrieved employees.” 

The Budget Proposal

On January 7, 2016, the Governor’s administration submitted a budget proposal seeking to “stabilize and improve the handling of PAGA cases.”  The proposal aims to provide additional staffing and resources to handle PAGA claims, increase State oversight and participation in PAGA cases, and reduce litigation and litigation costs.  To implement these goals, the Governor’s administration proposes to create a “PAGA Unit”, which would be part of the Department of Industrial Relations (“DIR”) and operate under the supervision of the Director of DIR.

The PAGA Unit would be tasked with carrying out LWDA’s responsibilities under PAGA.  Additional resources would be provided to allow the PAGA Unit to review a higher volume of PAGA notices to determine whether to investigate cases or authorize commencement of litigation.  In addition, the PAGA Unit will have a greater ability to investigate accepted cases.  This will give the DIR more information to determine how best to resolve a case—employer citation, settlement, or private litigation.

If approved, the proposal will require that the agency receive notice and an opportunity to object to any proposed settlement in a PAGA case.  The Governor’s administration asserts that this oversight will assure that settlements are fair to all “aggrieved employees” and the State.  As the proposal states, “protracted litigation creates strong incentives to settle in a way that best protects the interests of the actual plaintiffs and their attorneys, while discounting the claims and interests of other employee class members.”  Such results “run counter to PAGA’s fundamental goal of enabling private parties to aid in the enforcement of labor laws for the public benefit rather than purely their own private interest.”

The proposal will also develop procedures for DIR to create an amnesty plan in situations where a widespread industry practice has been invalidated by a court decision or similar legal action.  The purpose of this provision would be to induce employers to act quickly to reimburse employees for past violations and conform their practices with current law, in exchange for relief from the civil penalties available through PAGA.

The Governor’s administration also seeks to make several revisions to the PAGA statute to align it with the proposal’s stated purposes, including:

  • Employees would be required to provide more detail in the PAGA claim notices filed with the LWDA.
  • Employers may request that the LWDA investigate a noticed PAGA claim.
  • The LWDA’s time to review PAGA notices would be extended from 30 to 60 days, and the time to investigate a claim extended from 120 to 180 days. 
  • Employees must serve the Director of DIR with a copy of the complaint when a PAGA case is filed.
  • The Director of DIR must be given an opportunity to object to the settlement.
  • Procedures will be adopted whereby the Director of DIR may establish a temporary amnesty program to provide expedited back wages to employees and penalty relief to employers following the invalidation of a common industry practice.

Implications of the Budget Proposal

These PAGA proposals have wide-ranging implications for employers.  As an initial matter, providing the State with additional resources to review and investigate PAGA claims is much needed.  As stated in the proposal, less than 1% of PAGA cases are reviewed or investigated.  The additional staffing should help to weed out frivolous claims that employers now must incur significant costs to defend in court.  In addition, employers would gain the power to request LWDA investigations of PAGA claims, which in some cases may also help deflate frivolous complaints.  On the other hand, allowing the DIR to intervene and object to PAGA settlements could complicate the settlement process and lead to higher litigation costs if a settlement is not approved.  Further, the amnesty provision, while welcome to employers, may not be widely applicable given that invalidations of widespread industry practices are few and far between.

While this is only a budget proposal and legislative action is required to enact these proposals, California employers should monitor developments on these potentially significant changes to PAGA.  Even if this exact proposal is not adopted, the current proposal sheds light on the inefficiencies and complications with the current version of PAGA.