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How to Keep an Employee Lawsuit From Taking You Under


This story is part of our August 2023 print issue. To subscribe, click here.


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. 

Legal Shakedowns? 

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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