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PAGA reforms are a step in the right direction for California’s small businesses

July 5, 2024

As a member of our local community and a decades-long advocate for significant legal reform in California, I am optimistic about the negotiated reforms signed into law by Governor Gavin Newsom this week.

As the Southern California regional director of California Citizens Against Lawsuit Abuse (CA CALA), our grassroots organization has long championed the need for reforming the Private Attorneys General Act (PAGA). We also have advocated for significant legal reforms to address abuses tied to the American Disability Act (ADA) and other tort reform efforts that would improve the business climate in our state.

In the years leading up to these critical reforms being enacted, we would hear from local small business owners about the direct challenges of operating a business associated with frivolous lawsuits tied to PAGA.

PAGA was originally signed into law by Gov. Gray Davis in 2004 to give employees the means to sue their employers for labor code violations. But PAGA instead became an abused policy with systemic misuse and exploitation through the courts.

Essentially, bad actors, and the trial lawyers who took up their cases, were able to sue small businesses and cash in on settlements even when a suit seemed suspect at best. Many small businesses who were sued under PAGA did not have the monetary means to defend themselves in court. Many chose to settle to not risk losing their businesses. Many small business owners who did choose to fight were forced to later shut their doors when the court fees eventually became too expensive to continue operating.

The reform legislation enacted by Gov. Newsom on July 1, is a step in the right direction for California’s local small business economy. These reforms address the need for certainty that small businesses need to survive and tackles some of the more egregious issues with PAGA.

Employers need to know they can operate in a fair and competitive business environment and not one that is legally stacked against them. These reforms help do just that by leveling the playing field. In the past, a PAGA lawsuit being brought on a small business could be a death sentence. Many who didn’t close left the state taking good paying jobs with them.

In the agreed upon reforms, we see many of the fixes CA CALA has long championed. The newly enacted law aims to lessen the burdens being placed on small business owners. The changes in the agreed upon reform package look to be much better for both the employer and employee. It also gives employers an incentive to come into compliance with PAGA policies. What a novel concept!

The reforms also set a statute of limitations on when a claim can be filed, and the reasonable requirement that the plaintiff personally suffered each of the violations alleged. Both are key reforms that will limit the ability to file frivolous lawsuits.

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Thankfully, the reforms should also put a stop to some of the more egregious examples of PAGA lawsuits filed including those for typos on wage statements. Some employers faced lawsuits for failing to place the beginning date and ending date on a check stub even when the employee received his check on time and the check cleared the bank. Reforms also addressed a flaw that penalizes an employer, who pays employees on a weekly basis, being subject to paying twice the penalties compared to an employer who pays employees every other week.

Just as the new PAGA reform law is a step in the right direction for California’s small businesses, it’s no secret that additional reforms are needed in legislative sessions to come. The new reforms will certainly give back some of the needed certainty that businesses have not had for quite some time. And that is certainly a good thing for local employers, employees, and the future of our small business economy. For now, businesses can breathe a sigh of relief but there is still much more work to be done to curb lawsuit abuse in our state.

Maryann Marino is the Southern California Regional Director of California Citizens Against Lawsuit Abuse (CA CALA)

Orange County Register

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PAGA reforms are a step in the right direction for California’s small businesses

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