On January 7, 2016, Governor Brown’s office submitted a 22-page Budget Change Proposal for 2016-2017 (full propoal here) in an effort to “stabilize and improve the handling of Private Attorneys General Act cases.”

Background

Enacted in 2003, the Private Attorneys General Act (PAGA) enables private parties to recover penalties for certain Labor Code violations that could previously only be pursued by the Labor Commissioner or other divisions within California’s Department of Industrial Relations (DIR). Following a 2004 amendment, PAGA requires employees or their representatives to initiate a case by first sending written notice to the employer and the Labor and Workforce Development Agency (LWDA) identifying the alleged violations and setting forth specific supporting facts. 

There has been a surge in PAGA cases in recent years, and the January 7 budget proposal notes “neither the LWDA nor DIR has ever had the staffing and resources to effectively review notices, or choose cases for further investigation.” According to the proposal, notices are currently being reviewed by a single employee at the DLSE headquarters in San Francisco, who works under the direction of a unit manager in Oakland.  As such, the proposal reports “less than 1% of all PAGA cases are reviewed or investigated.”

Proposal

As part the Brown Administration’s commitment “to reducing unnecessary litigation and lowering the costs of doing business in California to support a thriving economic environment,” the proposal seeks $1.6 million to hire 10 new employees and create a new “PAGA Unit” within the DIR to carry out the LWDA’s responsibilities under PAGA, including:

• Reviewing PAGA notices to determine whether to accept cases for investigation or authorize commencement of private litigation;

• Investigating accepted cases and determining whether to cite the employer for Labor Code violations or settlement claims with the employer;

• Litigating and managing resolution of cases in which the employer has been cited or has settled;

• Evaluating and approving proposed settlements of PAGA litigation;

• Evaluating petitions for amnesty arising out of new precedent or legal development and determining the time frame and conditions for amnesty relief.

In addition, the proposal seeks to make several significant statutory amendments to PAGA, including:

• Requiring 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;

• Extending the LWDA’s time to review PAGA notices filed with the LWDA form 30 to 60 days, and specifying that employers may submit a request for the LWDA to investigate a PAGA claim;

• Requiring PAGA notices and employer responses to be submitted online and accompanied by a filing fee;

• Extending the time for the LWDA to investigate an accepted claim from 120 to 180 days;

• Requiring the Director of Industrial Relations to be served with a copy of the complaint when a PAGA case is filed;

• Requiring court approval of PAGA case settlements, and the Director of DIR be provided with notice and an opportunity to object before the court determines whether to approve a settlement;

• Creating a separate procedure through which interested 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.

While the proposal’s effort to reduce PAGA litigation should be welcome news to California employers, allowing the DIR Director to object to a proposed PAGA settlement may create a new set of issues for employers and employees alike. It remains to be seen whether the proposal will be approved and enacted, and California employers should closely monitor developments on this topic.