February 9, 2017, was a bad day for Mark Snyir and the Sacramento moving company he co-owns, Two Men and a Truck. He and his partner started the business in 2005, growing from two trucks and five employees to 16 trucks and 80 employees.
That particular Thursday, he opened a letter from the attorney for a former employee who’d worked there for eight months. He was filing a complaint under the state’s Private Attorneys General Act, plus a class-action lawsuit. It alleged the company had violated his rights and those of other employees under the state’s labor code.
What happened next would determine whether Two Men and a Truck survived.
How PAGA Came to Be
PAGA passed in 2004 after legislators heard evidence that the state’s labor agency lacked funding to police thousands of violations of the state’s labor code. It deputized workers to enforce labor laws, letting employees sue companies in civil court on the state’s behalf. If successful, they keep 25 percent of the penalties of $100 per initial violation and $200 for each successive violation going back three years.
More importantly, individual employees can sue for labor code violations on behalf of both themselves and fellow employees, even if the other workers allegedly suffered a different set of violations. The law is unique; while other states are considering similar proposals, none have yet passed.
PAGA’s opponents say those features give employees and their attorneys every incentive to sue businesses. Cases are easier to win than class actions for technical legal reasons having to do with standing and take far less time and money for plaintiffs’ attorneys to pursue. The three-year lookback period and ability to file on behalf of others exponentially increase the amounts owed. In the Sacramento region, the average PAGA settlement is just over a million dollars, according to a 2021 report.
Every California business with at least 50 employees should expect to be the target of a PAGA action, says Michael Nader, the Sacramento-based co-chair of Ogletree Deakins’ California Class Action and PAGA Practice Group. That means employers should consider a comprehensive audit of their wage and hour practices: analyzing timekeeping records to ensure compliance with meal break rules, and auditing payroll records to make sure regular rates are being calculated properly and employees are being paid properly for things like overtime and paid sick leave, Nader says. The alternative could be expensive.
For businesses, what’s at stake in PAGA claims is sometimes their survival. After sending Two Men and a Truck the complaint letter, the employee’s attorneys asked the company to turn over its policy manuals and a sample of its pay stubs and time cards. They also took sworn statements from five former employees.
The attorneys alleged the company had violated numerous parts of the labor code, extrapolating what they found in the sample to 568 current and former employees. The claims included that the company had forbidden employees from taking lunch, required employees to work off-the-clock, not reimbursing them for use of their personal cell phones for work purposes, and more.
Snyir and his co-owner didn’t think any of it had merit. For example, Snyir says supervisors always told employees they needed to take their lunch breaks and had never denied one — though because movers worked off site, the company couldn’t guarantee that they’d stopped for lunch. And every truck had a pager, so workers’ cell phones weren’t needed on the job.
With back pay plus the penalties mandated under PAGA, the attorneys made a demand: $13.4 million. As a sign of good faith, they’d take a flat $10 million.
That would wipe out Two Men and a Truck several times over. “It was a gut punch; the worst feeling ever,” says Snyir. “You quickly realize it’s a legal shakedown.” Worse for them, a provision of California labor law makes business owners personally liable in wage-theft cases, putting at risk their personal assets and savings.
The partners wanted to fight it in court rather than settle: They had many other current and past employees who’d testify in their favor, says Snyir. Their attorney advised against going to court — even if they won, the lawyer fees alone would be astronomical. Losing would bankrupt the company.
In the end the worker’s lawyers agreed to settle for $440,000. As part of the settlement, the company admitted to no wrongdoing. Snyir and his partner took out a loan to pay it off over two years.
Now they have a full-time staffer who dedicates half their hours to paging offsite movers to make sure they’re taking their meal and rest breaks and documenting that they do.
Justified Punishment for Wage Theft?
On the other side are workers and their attorneys who say PAGA is a powerful check on companies stealing money from their employees and engaging in other workplace abuses.
Three times as much money is stolen in wage theft — working employees off the clock, failing to pay minimum wage, not paying overtime — as is stolen in street robberies of all types, according to a 2014 report by the Economic Policy Institute, a Washington, D.C., think tank. A report that year commissioned by the U.S. Department of Labor concluded that minimum wage violations alone increased the number of California families living below the poverty line by 23 percent.
About nine of every 10 PAGA claims allege wage theft. In a 2007 case, four longtime landscape workers in Stockton won a PAGA claim for themselves and 58 of their co-workers after their employer didn’t pay them for their travel time and other hours, didn’t give them rest breaks, and required them to work in extreme heat without state-mandated health and safety precautions. In a settlement with the employer, the workers were each paid between $140 and $8,200 in PAGA penalties, according to the Oakland-based California Rural Legal Assistance.
Rachel Deutsch, an attorney and campaign director with the statewide advocacy group California Coalition for Worker Power, argues that PAGA has improved compliance with the state’s labor code, though there’s no good way to measure that, she says. A 2016 study in the journal Perspectives on Politics concluded that bigger penalties do indeed make a difference: In the prior decade, minimum-wage theft fell most in states that had enacted new and higher penalties against employers for wage theft — like triple damages for the amount underpaid.
But employer-side attorney Bruce Scheidt of Sacramento-area law firm Kronick says deterrence can go overboard. “If you speed on an interstate, if the remedy is you lose your license for five years, I bet that would cause people not to speed. Is that overkill?” he asks. He says yes and that it’s causing businesses to decide it’s too expensive to stay in California if it means having to spend a million dollars just to defend a PAGA lawsuit. Two of his clients have been forced to sell to out-of-state buyers after PAGA settlements, he says.
Nader and another Sacramento employer-side attorney, Phillip Ebsworth, said they know of businesses that have shut down because of a PAGA complaint.
Deutsch makes no apologies for PAGA’s effects: “If your business model is predicated on stealing from workers, then you should go out of business,” she says. The law isn’t the problem; it’s noncompliance, she says.
What’s Coming Next?
With the California Supreme Court mostly coming down on the side of PAGA supporters in a July 17 ruling on PAGA, the last best hope for its opponents is repeal. A coalition of business groups placed a 2024 ballot initiative that would do just that, ending the practice of deputizing workers to enforce state labor code and putting the responsibility back on the state’s Labor Commissioner.
Among other provisions, it would let the commissioner levy double penalties on employers who intentionally violate the labor code, distribute all of those penalties to the aggrieved employee, and eliminate attorneys fees, essentially removing worker-side lawyers from the process. Arbitration agreements that would keep workers from filing a complaint with the Labor Commissioner would have “no force or effect.”
Supporters claim those changes would be better for workers. That system would get disputes resolved faster and put more money in workers’ pockets instead of it going to attorneys, says Jennifer Barrera, president and CEO of the California Chamber of Commerce.
PAGA’s supporters dispute all of that. Deutsch says the ballot measure misses the point of PAGA; to ensure employers comply with the law, not to make workers whole. Employers have backed workers into a corner through mandatory arbitration clauses that forbid them from pursuing class-action lawsuits, forcing them to turn to PAGA.
And she says the ballot initiative would force the state’s Division of Labor Standards Enforcement to pursue complaints on an individual basis, requiring division staff to appear in each of the roughly 30,000 wage-and-hour complaints that come in each year. The DLSE already is struggling to process a flood of wage-theft claims — a record 38,000 in 2022, according to a January CalMatters report. Workers’ cases average more than 800 days to decide, almost six times the 135 days required by law.
Businesses Should Make Changes Now if They Haven’t
For area businesses, it’s a more critical time than ever to check in with employment attorneys to make sure their labor practices comply with state law and that any PAGA-related arbitration agreements they have employees sign are up to date.
Last May, Two Men and a Truck got a PAGA demand letter from the attorney of another former employee, the company’s second in six years. It charged that among other labor infractions, the company had paid him in lotto tickets, a violation of the labor code. Snyir was floored by that one. When employees start at the company, they get a welcome packet that includes a dollar scratch-off ticket — as a perk, not in lieu of wages, he says.
Synir says the allegations had no merit but that he knew they couldn’t afford to take the case to trial. So he called the attorney to offer $12,000 to settle. The lawyer asked for $30,000. “He told me, ‘$30,000 is a gift because we’re talking only about this one employee. Do I need to bring all the employees in for the last three years? Look at their time records? How sure are you of this? How confident?’” says Snyir. They settled on $24,000.
“I tell you, PAGA is on your mind daily,” says Snyir. “Because you know that everything could be lost, whether it’s your home or your retirement, if you don’t have the money.”
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