Negotiations intensify as business and labor groups fight over future of PAGA

Down-to-the wire negotiations to avoid an expensive ballot measure fight follow years of mostly failed legal and legislative efforts by business groups to undermine the law known as PAGA.

California's Private Attorney General Act has become one of the most common and successful ways to sidestep arbitration agreements in labor and employment contracts. Meanwhile, recent court decisions have reinforced the effectiveness of the 2004 law. The proposed initiative would repeal PAGA.

The talks have been underway since at least early May, when Gov. Gavin Newsom spoke about them onstage at an event in Sacramento. Meanwhile, according to sources speaking on background, the sides have grown further apart and more entrenched in recent days. This may reflect differing opinions about what voters might decide in November.

"Big business has gone back to the Legislature every year trying to eliminate PAGA or modify it," said Cliff Palefsky, a plaintiffs' attorney with McGuinn Hillsman & Palefsky in San Francisco. "The Democratic Legislature has fought off those efforts."

PAGA allows employees to sue to enforce state labor laws and win collective compensation for other workers. The name of the law, "private attorney general," signifies that a worker can essentially stand in the shoes of the California Attorney General. Palefsky said the strength of the law is that "it permits access to the courts" when workers otherwise might be able to get a hearing. Money recovered in PAGA cases also helps fund state labor enforcement actions.

"It's a unique law with unique standing," he said.

But PAGA has also enriched a generation of trial attorneys and made it worthwhile for them to take these cases while payouts in some other areas -- notably medical malpractice -- have been sharply limited by state law. This has been a sore point among PAGA's critics, who claim too much of the money goes to attorneys rather than workers.

"That's our main concern, reducing the number of lawsuits, these shakedown type lawsuits that are just designed to get a settlement," said Kathy Fairbanks, spokeswoman for the Fix PAGA coalition. "That's a big problem."

Fairbanks noted that she works for a legislative effort that is distinct from the initiative campaign but involves "many of the same players." Fix PAGA has spent over $1.8 million on influence efforts in Sacramento over the past year, according to records for the California Secretary of State's office. The group is chaired by Brian Maas, who also sponsors the initiative.

Despite all that spending, Democrats have been moving forward with a bill to strengthen PAGA. AB 2288 is sponsored by the Consumer Attorneys of California and labor groups, and authored by Assembly Judiciary Committee Chairman Ash Kalra, D-San Jose. The bill, which would allow courts to order injunctive relief in PAGA cases, narrowly passed the full Assembly last month. Kalra's office did not respond to an email seeking comment on the negotiations.

Fairbanks said the initiative would overturn the law, while a negotiated compromise "would not go as far." She said there is "plenty of time" to negotiate a deal by the June 27 deadline to remove initiatives from the fall ballot.

The initiative qualified in 2022, but not in time to make that year's ballot. A lot has happened since then. Last month, the 9th U.S. Circuit Court of Appeals ruled the Federal Arbitration Act does not stop PAGA claims from moving forward in court. The decision in Diaz v. Macy's West Stores Inc. 2024 DJDAR 3957 (9th Cir. Dec. 27, 2022) cited a recent California Supreme Court ruling. That court found that non-representative claims could proceed in court even if individual claims were forced into arbitration. Adolph v. Uber Technologies Inc., 2023 DJDAR 7311 (Cal. S. Ct., filed May 20, 2022).

"It revived the ability to go to court seeking a public injunction, as opposed to an individual remedy," Palefsky said.

According to multiple sources, there are only three parties in the room for the negotiations: the Newsom administration, the California Chamber of Commerce and the California Labor Federation. But dozens of other groups are in touch with these players and closely monitoring the outcome. The Chamber declined to comment but sent a link to Newsom's May 9 remarks in conversation with Chamber of Commerce President & CEO Jennifer Barrera.

"We appreciate Governor Newsom's office for mediating these discussions," Lorena Gonzalez, principal officer of the California Labor Federation, wrote in an email. "At the end of the day, our goal is a reformed PAGA that is more effective in stopping bad employers and making workers whole."

"We know that the initiative proponents are pushing for a deal, but we are hopeful that the Governor and the Legislature will fight back against efforts to gut PAGA's essential functions, which is to provide a pathway for workers to collectively enforce their rights and to deter employers from violating our labor laws," said Mariko Yoshihara, legislative counsel and policy director for the California Employment Lawyers Association.

Last week the campaign circulated a poll showing 72% of state voters surveyed support changes to PAGA similar to the initiative. This included 84% of Democrats and 56% of Republicans, according to a June 3 news release from the campaign. The poll was conducted between May 21 and 30 by EMC Research, which works for Democratic campaigns. However, that poll asked about legislative proposals, not a ballot measure campaign.

Fairbanks said the anti-PAGA initiative has been characterized as a business effort. But she said the coalition includes non-profits and others who have been targeted by PAGA lawsuits. She added that she believes labor groups may compromise because they want to focus on defeating another measure, The Taxpayer Protection Act, which would require voter approval for all new state and local taxes.

"As much as they can save money and get extraneous measures off the ballot, I think that's their goal," she said.

malcolm_maclachlan@dailyjournal.com