Labor and business reach deal on law that addresses workplace abuses

A deal has been struck between business and labor groups that puts an end to a long battle over a unique California law that allows workers who believe they have been victims of wage theft or other workplace abuses to sue employers not only for themselves but also for other workers.

Some of the largest companies in the state had banded together to place a measure on the November ballot that sought to effectively repeal the law, known as the Private Attorneys General Act, or PAGA. But backroom negotiations this month with unions and Democrats who opposed the initiative have resulted in a compromise that takes the initiative off the November ballot.

Instead, the deal reforms PAGA in a way that both businesses and workers say resolves problems with the law.

Concessions to business groups in the deal mainly involve changes to the penalty structure, making it more difficult for lawyers to simply demand a payout from a company. If companies can show they are trying to correct a violation, by giving back pay to workers and agreeing to change the offending practices, their penalties will be low.

“This package provides meaningful reforms that ensure workers continue to have a strong vehicle to get labor claims resolved, while also limiting the frivolous litigation that has cost employers billions,” said Jennifer Barrera, president and chief executive of the California Chamber of Commerce, according to a Tuesday news release from Gov. Gavin Newsom’s office announcing the deal.

Labor groups say the changes will help ensure that bad behavior by employers is halted, rather than simply awarding them a settlement and allowing a company to go back to problematic practices. The deal also allows workers to more quickly be paid back for wage theft and other violations.

“We want things fixed, changes that actually do help workers,” said Lorena Gonzalez, head of the California Labor Federation. “We are happy with the deal.”

The legislative deal would impose a time limit on lawsuits brought: Alleged violations must have occurred within the last year, and the workers bringing the claims must have personally experienced the alleged violations.

The deal also folds in labor-backed Assembly Bill 2288, introduced by Ash Kalra (D-San José), which aims to give PAGA more teeth by giving courts the power to order employers to correct violations.

Various labor organizations praised the deal in a news release, saying that it upholds core tenets of PAGA that aim to let workers hold abusive employers accountable for widespread wage theft, safety violations and misclassification of workers as independent contractors.

“PAGA is one of workers’ strongest protections against wage theft that drains at least $2 billion from workers’ pocketbooks each year. Today’s agreement protects this landmark law’s fundamental strength: workers’ right to access justice through our courts,” Alexandra Suh, co-president of the California Coalition for Worker Power and executive director of Koreatown Immigrant Workers Alliance, said in a statement.

The measure, initially set to appear on the California ballot in November, had been the culmination of long-standing efforts by corporate and industry groups to undo the law.

Business groups had criticized PAGA for causing what they described as a proliferation of frivolous and costly lawsuits that hurt small businesses and nonprofits. According to one study, the mounting lawsuits have cost businesses $10 billion during the last decade.

Under the PAGA law, workers would end up getting less money after a long legal process than if they had filed complaints through state agencies, groups backing the measure had said.

The law has helped workers sue companies such as Walmart, Uber Technologies and Google for workplace violations.

“There is near universal consensus that PAGA is broken and not working for workers or employers,” said Brian Maas, president of the California New Car Dealers Assn., according to a news release from businesses that sought to repeal PAGA. “We need sensible reforms to fix the broken system. We support this legislative reform and encourage lawmakers to swiftly pass the measure.”

Negotiations over PAGA came amid broader discussions around the 2024 ballot as well as budget conversations in Sacramento underway this month. The governor must sign a balanced state budget by June 30, and the deadline to put measures on the November ballot is June 27. Talks are ongoing over another business-backed ballot measure that would make it harder for the state to increase taxes.

Proposed changes to PAGA aim to encourage compliance with labor laws by capping penalties on employers that quickly take steps to fix bad practices. For employers that take steps to comply with the labor code before even receiving notice that they will be sued under PAGA, penalties are capped at 15% of the amount that would have otherwise been awarded. For employers that work to correct violations after receiving a PAGA notice, penalties are capped at 30%.

More of the penalty money would go to workers, with their allocated share increasing from 25% to 35%.

The reform would levy a new, higher penalty of $200 per pay period on employers that act “maliciously, fraudulently or oppressively” in violating labor laws.

Changes also aim to protect smaller companies by creating a process through which they can correct violations through the state labor department, to reduce their litigation costs.

“Small businesses throughout the state have been targeted by frivolous PAGA lawsuits for decades, even forcing some restaurants to shut down,” Jot Condie, president and CEO of the California Restaurant Assn., said in a statement. The reform package will “reduce shakedown lawsuits against small businesses.”

The Legislature will consider the reform legislation agreed to under the deal as early as this week. If the compromise is approved and signed by the governor, the coalition of businesses backing the initiative, called the Fix PAGA coalition, will remove its measure from the ballot.

Labor groups had raised an alarm about the ballot initiative in recent months, arguing that PAGA is a crucial tool for workers, since California struggles to enforce basic labor laws.

Although California has some of the toughest labor laws in the country, a study released last month by a team of researchers from UC San Francisco and Harvard University found that workers routinely experience abuses over pay, work schedules and other issues.

A recent audit of the California labor commissioner’s office found that claims of wage theft filed by California workers are routinely left in limbo for years by state investigators. The labor commissioner’s office would need to hire hundreds of additional staffers to effectively address a massive backlog.

Newsom’s office, as part of the deal, will pursue a budget-related bill to give the California Department of Industrial Relations the ability to expedite hiring in order to improve enforcement of wage theft claims.

Negotiations over the deal have lasted months and appeared to be going nowhere, but Newsom’s office, which was mediating the discussions, stepped in with a firmer hand this month. The deal came together over the last few weeks and was finalized on Monday, said a source familiar with the negotiations.

“Though we’ve successfully negotiated a dangerous measure off the November ballot — we can only hope that this deal encourages more employers to follow the law and pay their workers what they are owed. California’s worker advocate attorneys will continue to work vigilantly to ensure that they do,” said Kathryn Stebner, president of Consumer Attorneys of California.