BILL ANALYSIS Ó
AB 2465
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Date of Hearing: April 20, 2016
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 2465
(Grove) - As Introduced February 19, 2016
SUBJECT: Labor Code Private Attorneys General Act of 2004
SUMMARY: Amends the Labor Code Private Attorneys General Act of
2004 (PAGA Specifically, this bill:
1)Provides that, upon receipt of a notice by an aggrieved
employee alleging specified violations of the Labor Code
pursuant to PAGA, the Labor and Workforce Development Agency
(LWDA) shall investigate the alleged violation and determine
if there is a "reasonable basis" for a civil action within 120
calendar days.
2)Provides that the aggrieved employee may commence a civil
action upon receipt of the notice by LWDA that there is a
reasonable basis for a civil action, or if the LWDA fails to
provide timely or any notice.
EXISTING LAW:
1)Provides that the LWDA shall notify an aggrieved employee and
the employer if it intends to investigate an alleged violation
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within 30 days of an employee providing written notice
required under existing law.
2)Provides that, upon receipt of notice that LWDA will not issue
a citation, or if no citation is issued by LWDA within 158
days, the aggrieved employee may commence a civil action under
PAGA.
FISCAL EFFECT: Unknown
COMMENTS:
Background on the Labor Code Private Attorneys General Act of
2004 (PAGA)
The Labor Code Private Attorneys General Act (PAGA) was enacted
pursuant to SB 796 (Dunn), Chapter # 906, Statutes of 2003, and
went into effect on January 1, 2004.
The Legislative findings accompanying the enactment of SB 796
stated the following:
"Adequate financing of essential labor law enforcement
functions is necessary to achieve maximum compliance with
state labor laws in the underground economy and to ensure
an effective disincentive for employers to engage in
unlawful and anticompetitive business practices.
Although innovative labor law education programs and
self-policing efforts by industry watchdog groups may have
some success in educating some employers about their
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obligations under state labor laws, in other cases the only
meaningful deterrent to unlawful conduct is the vigorous
assessment and collection of civil penalties as provided in
the Labor Code.
Staffing levels for state labor law enforcement agencies
have, in general, declined over the last decade and are
likely to fail to keep up with the growth of the labor
market in the future.
It is therefore in the public interest to provide that
civil penalties for violations of the Labor Code may also
be assessed and collected by aggrieved employees acting as
private attorneys general, while also ensuring that state
labor law enforcement agencies' enforcement actions have
primacy over any private enforcement efforts undertaken
pursuant to this act."
The co-sponsors of SB 796, the California Labor Federation,
AFL-CIO and the California Rural Legal Assistance Foundation,
argued that the bill would address inadequacies in labor law
enforcement in two major ways. First, the bill assigned civil
fine amounts to the large number of Labor Code provisions, which
previously carried prohibitions or criminal fines, but not civil
penalties. Second, it authorized the filing of civil actions to
recover existing and new civil penalties by aggrieved workers
acting as private attorneys general.
The PAGA was significantly amended by SB 1809 (Dunn), Chapter #
221, Statutes of 2004.
SB 1809 significantly amended the provisions of the PAGA by
enacting specified procedural and administrative requirements
that must be met prior to bringing a private action to recover
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civil penalties. Moreover, SB 1809 provided that no action
shall be brought for a posting, notice, agency reporting, or
filing requirement, except as specified.
The provisions of SB 1809 also expanded judicial review of PAGA
claims by requiring courts to review and approve any penalties
sought as part of a proposed settlement agreement, and those
portions of settlements concerning violations of health and
safety laws. In addition, courts were authorized to award a
lesser amount if to do so otherwise would result in an award
that is unjust, arbitrary and oppressive, or confiscatory.
Finally, SB 1809 appropriated $150,000 from the General Fund to
the LWDA for the purposes of implementing its provisions, and
changed the prior penalty formula to provide that 75 percent of
most civil penalties recovered pursuant to PAGA shall go to the
LWDA for labor law enforcement and education.
Existing Procedural Requirements Under PAGA
As discussed above, SB 1809 significantly amended the provisions
of the PAGA by enacting specified procedural and administrative
requirements that must be met prior to bringing a private action
to recover civil penalties. SB 1809 essentially enacted three
different procedural requirements depending on the type of
violation.
"Serious" Labor Code Violations
SB 1809 established a new procedure that an aggrieved employee
must follow prior to bringing a civil action to recover
penalties for enumerated, serious Labor Code violations
(including, but not limited to, violations of wage and hour,
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overtime, child labor, agricultural, entertainment and garment
industry labor laws, and public works laws).
First, the aggrieved employee must provide written notice of the
violation to the LWDA and to the employer. The LWDA has 30 days
to decide if it will investigate the violation. If the LWDA
decides to investigate the alleged violation, it must notify the
employer and the aggrieved employee within 33 days. Within 120
days of that decision, the Labor Agency may investigate the
alleged violation and issue any appropriate citation. If the
LWDA fails to act, the aggrieved employee may pursue a civil
action under PAGA.
Notice and Cure Provisions for Other Labor Code Violations
SB 1809 also established specified "notice and cure" provisions
for those Labor Code violations not enumerated as "serious"
above, nor subject to the Cal-OSHA provisions specified below.
For these violations, the following procedural requirements
apply:
First, the aggrieved employee must give written notice to the
LWDA and the employer of the alleged violation. The employer
may cure the alleged violation within 33 days and give written
notice to the employee and the LWDA if the alleged violation is
cured.
If the alleged violation is cured, no civil action pursuant to
PAGA may commence.
If the alleged violation is not cured within the 33-day period,
the aggrieved employee may commence a civil action pursuant to
PAGA. For the aggrieved employee to dispute that the alleged
violation has been cured, the employee must provide written
notice to the employer and the LWDA. Within 17 days the LWDA
must review the actions of the employer and provide written
notice of whether the alleged violation has been cured.
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If the LWDA determines that the alleged violation has not been
cured or if the agency fails to provide timely or any
notification, the aggrieved employee may proceed with a civil
action pursuant to PAGA. If the agency has determined that the
alleged violation has been cured, but the employee still
disagrees, the employee may appeal that determination to the
superior court.
No employer may avail himself or herself of the "notice and
cure" provisions more than three times in a 12-month period for
the same violation or violations contained in the notice,
regardless of the location of the worksite.
Cal-OSHA Violations
SB 1809 also established a new procedure that an aggrieved
employee must follow prior to initiating a civil action to
recover penalties for violations of Labor Code provisions
pertaining to occupational safety and health (Cal-OSHA), as
follows:
The aggrieved employee must give written notice to the
Division of Occupational Safety and Health (DOSH) within
the Department of Industrial Relations (DIR) and the
employer of the alleged violation.
DOSH must inspect or investigate the alleged violation
pursuant to existing provisions of law.
If DOSH issues a citation, no civil action pursuant to
PAGA may commence.
If, by the end of the period for inspection or
investigation, DOSH fails to issue a citation and the
employee disputes that decision, the employee may challenge
the decision in the superior court. If the court finds
that DOSH should have issued a citation and orders DOSH to
issue a citation, then no civil action pursuant to PAGA may
commence.
If DOSH fails to inspect or investigate the alleged
violation within the period specified in existing law, the
notice and cure provisions outlined above apply to the
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determination of the alleged violation.
The superior court shall review any proposed settlement
of alleged safety in employment violations to ensure that
they are at least as effective as the protections or
remedies provided in federal and state law.
Governor's Proposed Budget Changes to PAGA
The Governor's proposed budget released in January contains
additional budget resources for the handling of PAGA cases, and
also proposed a number of significant policy and procedural
changes to the PAGA statute itself.
With respect to resources, the Governor's proposed budget change
proposal (BCP) states the following:
"This proposal requests 1.0 position for the Labor and
Workforce Development Agency (LWDA), 9.0 positions for the
Department of Industrial Relations (DIR), and $1.6 million in
the Labor and Workforce Development Fund (LWDF) for the
2016/17 fiscal year ($1.5 million ongoing) to stabilize and
improve the handling of Private Attorneys General Act cases,
largely to the benefit of workers, employers, and the state."
Further explaining the rationale for increased resources, the
BCP states the following:
"As indicated in the Resource History and Workload History
charts above, historically, the LWDA and DIR have not been
staffed to perform the review and oversight functions
contemplated by the Labor Code Sections 2698 - 2699.5 (PAGA).
This has contributed to a range of concerns about the PAGA
statute itself, Including that employers are being sued and
incurring substantial costs defending against technical or
frivolous claims, and that workers and the state often end up
being shortchanged when these cases are settled. Employers are
also concerned about potential exposure to large back pay and
penalty claims, often pursued through PAGA actions, when
courts make new precedential determinations in wage and hour
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cases. This proposal would address these by concerns by
providing DIR with the staffing needed to effectively oversee
and, when appropriate, step in to handle PAGA cases."
The BCP also proposes a number of significant policy and
procedural changes (through proposed budget trailer bill
language) to PAGA statute itself. The BCP describes these
proposed statutory changes as follows:
"This proposal will also make a number of modest revisions to
the PAGA statute to improve the state's oversight of PAGA
cases and better insure that they are pursued in the public's
interest and not just for private purposes. Proposed revisions
would provide for the following:
Require more detail in the PAGA claim notices filed
with the LWDA and require that claims for ten or more
employees be verified and accompanied by a copy of the
proposed complaint.
Extend 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.
Require PAGA notices and employer responses to be
submitted online and accompanied by a filing fee.
Extend the time for the LWDA to investigate an
accepted claim from 120 to 180 days.
Require the Director of Industrial Relations to be
served with a copy of the complaint when a PAGA case is
filed.
Require court approval of all PAGA case settlements,
and require that the Director of DIR be provided with
notice and an opportunity to object before the court
determines whether to approve a settlement.
Create a separate procedure through which interested
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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 (similar to Assembly Bill
1513, Chapter 754, Statutes of 2015)."
Recent LAO Analysis of Governor's Budget Proposal
On March 25, 2016, the LAO released an analysis of the PAGA
proposals contained in the Governor's proposed budget. With
respect to proposals related to proving more information to the
LWDA, LAO stated:
"We think the Governor's proposed amendments to PAGA requiring
more information be provided to LWDA-specifically, more detail
in the initial PAGA notice and that a copy of the PAGA
complaint and any settlement be provided to LWDA-are a
reasonable extension of LWDA's oversight of the PAGA process
that would make it possible to better assess the nature and
extent of the undesirable outcomes highlighted in the
Governor's proposal. Information obtained about the
disposition of PAGA claims could play an important role in
future consideration of other potential proposals to modify
the PAGA process."
However, with respect to some of the other proposals, LAO
expressed concern that they should be addressed through policy,
rather than the budget, process:
"In our view, the remaining proposed amendments to the PAGA
process differ from those discussed immediately above in that
they raise more significant policy issues that are more
central to the Legislature's intent for PAGA. For example, the
remaining proposed changes touch on questions of employee
access to the PAGA process, how long employees should wait for
LWDA to conduct an investigation before the claim may proceed,
and whether LWDA should be able to influence the outcome of a
PAGA claim once it has decided not to investigate or issue a
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citation. While the proposed changes may have merit, such
fundamental changes to PAGA, in our view, would be more
appropriately considered in the legislative policy process
rather than the state budget process. This policy deliberation
also may be more productive once LWDA has more complete
information about the outcomes of PAGA claims-as proposed by
the Governor."
Related Legislation
AB 2898 (Labor Committee) makes changes to some of the
administrative timelines under PAGA. AB 2898 is intended to
serve as a potential policy vehicle for potential policy changes
to PAGA as the year continues and depending on the outcome of
the budget discussions around PAGA mentioned above.
AB 2461 (Grove) limits PAGA only to alleged violations of
specified provisions of law dealing with meal and rest and
recovery periods and overtime compensation. AB 2461 is
currently pending before this committee.
AB 2462 (Grove) would provide an employer with the right to cure
any violation of the Labor Code before an aggrieved employee may
bring a civil action under PAGA. AB 2462 is currently pending
before this committee.
AB 2463 (Grove) would establish a cap on specified penalties
under PAGA of $1,000 for each aggrieved employee. AB 2463 is
currently pending before this committee.
AB 2464 (Grove) would authorize a court to dismiss an action as
to an aggrieved employee seeking recovery of a civil penalty
under PAGA, if, after notice and hearing, the court finds that
the aggrieved employee suffered no appreciable physical or
economic harm. AB 2464 is currently pending before this
committee.
Prior Related Legislation
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In response to concerns about PAGA claims being filed for
alleged technical violations of an employer's obligation to
provide accurate wage statements, AB 1506 (Roger Hernández) of
2015 was enacted to amend PAGA to provide an employer with the
right to cure a violation of failing to provide its employees
with a wage statement containing the inclusive dates of the pay
period and the name and address of the legal entity that is the
employer. AB 1506 was enacted as an urgency statute and went
into effect on October 2, 2015.
Arguments in Support
According to the author:
"The intent of PAGA was simple: give employees the ability to
enforce state labor laws if the state agency did not have the
time or ability to investigate violations because of a lack of
resources.
However, over the years PAGA has increasingly been abused. As
an unintended consequence, attorneys are using PAGA to file
multi-million dollar lawsuits against small business owners
over frivolous and non-harmful labor code violations.
Companies are then forced into settlement agreements with most
of the money going to pay attorney fees. It is a modern day
shakedown on California employers. Over 30,000 PAGA lawsuits
have been filed over the last five years.
We should be enabling employers to thrive, not forcing them
out of business. PAGA does not require that an employee suffer
any actual harm prior to filing a lawsuit against their
employer.
PAGA created a formula for awarding civil penalties. If an
employee or group of employees is successful in their suit,
they receive 25 percent of the total amount of PAGA penalties
paid by their employer, and the remaining 75% goes to the
LWDA. However, since companies often settle out of court,
attorneys bypass these statutory financial obligations by
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reducing the PAGA penalties to a much lower amount. Then the
majority of the settlement goes to attorney fees?
?It is clear that PAGA reform is necessary. The Labor Code
plays a vital role in protecting California's workforce. The
intent of this PAGA reform is to prevent lawsuit abuse; if
this bill becomes law, employers will still be required to
follow the Labor Code."
Therefore, the author states that this bill would require the
LWDA to determine if there is a reasonable basis for a PAGA
action against an accused employer for Labor Code violations
within 120 days of receiving the complaint; then notify the
employer and aggrieved employee of their decision. The bill
would not allow an aggrieved employee to bring a PAGA lawsuit
against their employer until the LWDA has given notice that
there is reasonable basis for a lawsuit, or the LWDA does not
complete the investigation within the specified timeline.
Arguments in Opposition
Opponents argue that this bill will waste taxpayer money on
thousands of full-scale investigations of every PAGA claim.
They contend that the point of PAGA was to allow private
plaintiffs to enforce laws where a state agency is overburdened
and underfunded. If the state had the resources to handle all
of these claims, there would be no need for PAGA, but that
simply is not the reality.
Opponents also argue that this bill will create unnecessary
delays while a claimant waits for an investigation that is
likely to result in no meaningful enforcement action. In
addition, they contend that the potential for abuse is huge: an
administration hostile to PAGA might conduct only cursory
reviews and issue findings that there is no reasonable basis,
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which would mean that a workers' right to sue under PAGA would
never vest unless the worker prevailed in a separate action
against the agency challenging its no reasonable basis finding.
Finally, opponents note that the Governor's pending budget
proposal on PAGA would give the agency additional resources and
authority to address some of these same issues, making this bill
not only unwarranted but also unnecessary.
REGISTERED SUPPORT / OPPOSITION:
Support
Associated Builders and Contractors of California
California Apartment Association
California Asian Pacific Chamber of Commerce
California Association for Health Services at Home
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Farm Bureau Federation
California League of Food Processors
California Manufacturers and Technology Association
California Pool and Spa Association
Civil Justice Association of California
Family Business Association of California
National Federation of Independent Business
Western Growers Association
Opposition
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CA Conference Board of the Amalgamated Transit Union
CA Conference of Machinists
California Employment Lawyers Association
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council
Consumer Attorneys of California
Engineer & Scientists of CA, Local 20
International Longshore and Warehouse Union
Professional & Technical Engineers, Local 21
UNITE HERE
Utilities Workers Union of America, Local 132
Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091
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