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New California Budget Proposal Intends to Reduce Litigation by Increasing State’s Oversight of PAGA Cases

Published by on April 7, 2016

In an effort to reduce backlogs and increase the effectiveness of the state’s Private Attorneys General Act (PAGA), the California Labor & Workforce Development Agency has formally requested state funds to create a new PAGA unit.

On January 7, 2016, the California Labor and Workforce Development Agency (LWDA) and the state Department of Industrial Relations (DIR) presented a new budget proposal formally requesting 10 positions and $1.6 million for 2016, plus $1.5 million in subsequent years ongoing, to stabilize and improve the handling of Private Attorneys General Act (PAGA) cases.

The DIR also requested approval of statutory changes needed to enhance DIR’s oversight of PAGA cases. A copy of the 22-page Budget Change Proposal can be found here.

Background of PAGA

The California Private Attorneys General Act (PAGA) was enacted in 2003 to enable private parties to litigate claims and recover penalties for Labor Code violations that previously could only be pursued by the Labor Commissioner or other divisions of the DIR. PAGA requires that employees initiate a case by sending written notice to the employer and the LWDA identifying the alleged Labor Code violations and the facts and theories supporting the claims. The LWDA then decides whether to investigate or cite the employer for the Labor Code violations.

The LWDA and DIR, however, have not had the staffing or resources to effectively review notices or choose cases for further investigation. Since the end of 2013, PAGA notices have been reviewed by one employee of the Division of Labor Standards Enforcement, resulting in less than 1% of all PAGA cases being reviewed and/or investigated.

Stated Purpose for Proposal and Increased Budget

Given the scope and frequency of PAGA filings, the LWDA believes it will reduce unnecessary litigation and lower the costs of doing business in California if it can increase the rate of administrative handling of PAGA cases rather than having the courts handle PAGA cases.

The LWDA believes cases investigated by the State tend to resolve much more quickly with a better outcome for workers in terms of back wages recovered, promptness of payments, and commitments to future compliance, than private PAGA litigation.

The LWDA also believes that faster, more efficient resolution of PAGA claims will save employers considerable litigation costs and potential liability for plaintiffs’ attorneys’ fees. Lastly, the LWDA believes that greater state oversight and participation in PAGA cases will help reduce PAGA litigation and costs by weeding out marginal and frivolous claims.

The LWDA Proposal

To accomplish these goals, the proposed increased budget would be used to hire 10 new employees and to create a unit within DIR to carry out the LWDA’s responsibilities under PAGA. The PAGA unit would:

  • Review PAGA notices to determine whether to accept cases for investigation or authorize commencement of private litigation.
  • Investigate accepted cases and determine whether to (1) cite the employer for Labor Code violations, and (2) settle claims with the employer.
  • Litigate and manage resolution of cases in which the employer has been cited or has settled.
  • Evaluate and approve proposed settlements of PAGA litigation.
  • Evaluate petitions for amnesty relief arising out of new precedent or legal development and determine time frame and conditions for amnesty relief.
  • As a result of the requested budget increase and additional staffing, the DIR anticipates that the LWDA will be able to review up to 900 PAGA notices and retain and investigate up to 45 PAGA cases.

In addition, the proposal seeks to make several significant statutory amendments to PAGA, including:

  • Requiring more detail in PAGA claim notices filed with the LWDA and requiring that claims for ten or more employees be verified and accompanied by a copy of the proposed complain.
  • Extending the LWDA’s time to review PAGA notices from 30 to 60 days, and specify that employers may submit a request for the LWDA to investigate a PAGA claim.
  • Requiring PAGA notices and employer responses to be submitted online and accompanied by a filing fee.
  • Extending the time for the LWDA to investigate an accepted claim from 120 to 180 days.
  • Requiring the DIR to be served with a copy of the complaint when a PAGA case is filed.
  • Requiring court approval of all PAGA case settlements, and requiring that the Director of DIR be provided with notice and an opportunity to object before the court determines whether to approve a settlement.
  • Creating a separate procedure through which interested parties may ask the Director of DIR to establish a temporary amnesty and safe harbor program to provide expedited back wage payments to employees and penalty relief to employers following the invalidation of a widespread industry practice.

One possible benefit of the proposal is that employers may be able cut attorneys’ fees if the LWDA investigates more PAGA cases since they will not litigate as much in court. An increase in investigations may help to decrease the number of PAGA cases litigated in court because an employee cannot commence a PAGA case if a PAGA claim is being investigated or a citation has been issued by the LWDA. The LWDA may also be able to weed out frivolous claims brought by employees in court and employers would be able to request an investigation of a PAGA claim by the LWDA before it is litigated in court.

According to the LWDA, employers will save considerable litigation costs and potential liability for plaintiffs’ attorneys’ fees if more PAGA cases are investigated and resolved by the LWDA. The LWDA, however, only expects to be able to review 900 of the more than 6,000 PAGA notices each year (since 2012), and will only investigate 45 of those 900. Thus, most employers will not likely experience the intended impact of increased investigations by the LWDA.

The requirement that the Director of DIR be provided with notice and an opportunity to object before the court determines whether to approve a PAGA case settlement will likely create issues for employers trying to settle these cases. This requirement is intended to as a “check and balance” against PAGA settlements that may be discounted to benefit the representative plaintiff and his or her attorneys at the expense of the LWDA and its Fund. The Director of DIR and his or her staff will need to review the proposed settlements and can object to a PAGA settlement if it appears to be inadequate or unfair or if it does not fully protect the legal rights of affected employees.

The LWDA believes the cost of this work will be offset if not exceeded by larger penalty recoveries to the State. In other words, the LWDA anticipates that its involvement in every PAGA case settlement will result in higher settlement amounts. Thus, the LWDA’s involvement will likely result in a more complicated settlement process, increased settlement awards or further litigation when a settlement is not approved due to the LWDA’s intervention.

Welter Insight

Although the proposal has not yet been approved and enacted, California employers should pay particular attention to this topic because the LWDA is clearly understaffed and underfunded to accomplish its goals under PAGA. No matter if or how much of the proposal is approved, there will likely be increased oversight of PAGA cases by the LWDA this year.

Image Credit: rocketboom (Flickr @ Creative Commons)
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