California to Change Labor Law That Cost Businesses $10 Billion

California’s largest business and labor groups agreed to change a landmark law that has helped workers sue companies such as Walmart Inc., Uber Technologies Inc. and Google for workplace violations.

The deal caps years of efforts by the state’s employers to rein in the Private Attorneys General Act, which they blame for mounting lawsuits that according to one study have cost businesses $10 billion during the past decade. Advocates say the law, known as PAGA, is a model of worker protection that has given employees a measure of recourse against powerful companies.

The agreement calls for limiting penalties owed by employers that act swiftly to fix alleged violations and giving businesses more avenues to avoid PAGA lawsuits in the first place by correcting labor code violations. At the same time, employers acting “maliciously, fraudulently or oppressively” would face higher penalties, according to a statement Tuesday from Governor Gavin Newsom’s office.

The PAGA deal preserves the law’s key provisions, which establish a unique right in California for workers to sue their bosses in the name of the state over alleged workplace violations.

“We came to the table and hammered out a deal that works for both businesses and workers, and it will bring needed improvements to this system,” Newsom said in the statement.

Newsom convened weeks of negotiations between the California Chamber of Commerce and the California Labor Federation to hash out the pact. Looming over the talks was a November ballot measure, backed by a coalition of business groups, that would have given voters the opportunity to repeal the PAGA law altogether.

The measure will now be removed from the ballot, and the deal is expected to be approved by state lawmakers, according to statements released by the governor and Democratic leaders in both houses of the legislature.

PAGA, which passed in 2003, has grown into a major thorn in the side of businesses by helping employees file lawsuits on behalf of their colleagues and duck forced arbitration clauses. With such clauses becoming increasingly common, PAGA cases have spiked. In 2022, the number of settlements topped 3,165, compared with only about 1,000 in 2017, according to a report commissioned by the chamber of commerce.

Opponents of PAGA have long argued that the law allowed an army of lawyers to file lawsuits for minor technical violations of the state’s sprawling labor code, such as spelling errors, that don’t relate to more serious issues such as wage theft or poor working conditions. They pointed to cases in which plaintiffs’ attorneys won bigger payouts than their clients.

Jennifer Barrera, president of the chamber of commerce, said the compromise deal will limit “frivolous litigation that has cost employers billions without benefiting workers.”

Unions had worried that wage theft would go unpunished if PAGA was repealed. While workers can file claims seeking unpaid wages with the state labor commissioner, that department is understaffed and can take more than two years to reach decisions, according to a state auditor report.

“We are happy to have negotiated reforms to PAGA that better ensure abusive practices by employers are cured and that workers are made whole, quicker,” said Lorena Gonzalez, the head of the California Labor Federation.

The negotiations over the law mirrored an increasingly familiar playbook in California, where companies often look to sidestep the state legislature’s Democratic super-majority by funding ballot measures that would take their arguments directly to voters. They can then use the prospect of a costly ballot fight to force talks overseen by the governor’s office.

If an agreement is reached, the legislature approves the compromise and all sides avoid spending the tens of millions of dollars that it would cost to to drum up support or opposition for the ballot measure — a scenario that now looks highly likely in the PAGA case.