The Private Attorneys General Act (PAGA) in California deputizes employees to sue employers for Labor Code violations on behalf of the state. Before filing a PAGA lawsuit, employees must submit a notice of alleged violations to the employer and the Labor and Workforce Development Agency (LWDA). 

After a review period, the LWDA can investigate the claims or allow the employee to proceed with litigation. PAGA claims seek civil penalties for violations, with 75% going to the state and 25% to aggrieved employees when recovered. 

While PAGA was intended to help enforce California labor laws, it is also susceptible to abuse by employees aiming to extract unwarranted settlements from employers through inflated claims. 

Let’s look at some of the most common ways employees exploit the PAGA system and how you can protect your organization.

1. Filing Lawsuits Over Minor Technical Issues

One common way employees abuse PAGA is by filing lawsuits over minor, technical violations that likely caused no actual harm. For example, an employee could pursue claims over minor defects in wage statements, like a missing end date or company address. 

Or they may seek waiting time penalties for the full statute of limitations period, regardless of when the underlying violation occurred. While companies should aim to provide compliant pay stubs, inconsequential defects happen occasionally in large workforces. 

Seeking enormous PAGA penalties over minor issues that didn't negatively impact employees exploits the system for financial gain. It becomes extortion rather than obtaining justice. 

Preventing even negligible violations requires comprehensive and continuous HR oversight. A professional employer organization (PEO) can provide this through managing payroll, maintaining compliance, and implementing HR technology.

2. Naming Individual Managers as Defendants

Another questionable PAGA lawsuit tactic is naming individual managers as defendants alongside the employer company. While PAGA claims are normally filed against the corporate entity, adding individual supervisors personally as defendants ups the intimidation factor. 

Facing potential personal liability and legal costs exerts tremendous pressure on managers to push for fast settlement of claims regardless of merit. Settlement amounts under PAGA often greatly exceed actual unpaid wages or damages. 

While companies can't prevent employees from naming individual defendants, having proper HR policies and training helps minimize conduct that could spur claims. PEOs provide ongoing policy guidance, training, and HR support to reduce these risks.

3. Making Exaggerated Claims

Employees sometimes abuse PAGA by making exaggerated accusations of wage and hour violations that extend beyond actual circumstances. For example, they may allege pervasive missed meals or rest breaks without providing proper proof. 

Or they could falsely claim overtime was never correctly paid, despite only isolated incidents where it slipped through the cracks. Greatly embellished claims allow employees to seek bloated damages and penalties under PAGA. 

While occasional, minor violations might occur in large workforces, maintaining comprehensive policies, training, and auditing processes can help refute allegations of systemic abuses. 

4. Using Notice Letters to Threaten Litigation

Some employees misuse PAGA by sending notice letters threatening litigation solely to frighten employers into quick settlements. Rather than immediately filing claims through proper channels, they send letters demanding fast payouts and exploit the looming threat of a lawsuit. 

While employers should take all legal threats seriously, not every notice letter necessarily warrants settling, especially if claims seem inflated or unsubstantiated.  

Still, receiving a PAGA notice indicates areas of potential exposure needing review and correction. 

A PEO can audit compliance risks raised in the letter and recommend any necessary changes, strengthening defenses against premature settlements.

5. Filing Claims to Get Rehired After Termination

Some discharged employees abuse PAGA by filing claims seeking to leverage settlements in exchange for dropping the lawsuits. Rather than pursuing legitimate unpaid wage allegations, their true motivation is getting rehired or receiving additional severance pay. 

While employers may be tempted to settle these cases quickly, each situation deserves careful review. There are many valid reasons for terminating employees that don't warrant rehiring or extra severance. 

A consistent and well-documented termination process will help defend against dubious claims. A PEO partner gives HR guidance on proper termination practices and unemployment claim management.

6. Targeting Deep-Pocketed Employers

Some plaintiffs' attorneys also exploit PAGA lawsuits for their own financial benefit rather than justice for employees. Under PAGA, lawyers can take around a third of any settlement or judgment amount as legal fees. 

So, they have incentives to pursue inflated claims against deep-pocketed employers most capable of paying large settlements, regardless of actual labor practices. Employees may see little of the final payouts. 

While legal counsel plays a vital role in resolving legitimate disputes, employers should ensure claims have legal merit before agreeing to settlements.

7. Suing Compliant Employers Over Isolated Incidents

Some PAGA lawsuits target compliant employers with overall good labor practices over isolated, minor violations. For example, an employer may face claims for a couple of missed meal breaks due to unusual circumstances. 

Or they could be sued for a couple of pay stubs missing end dates despite generally providing compliant wage statements. While no employer is perfect, largely compliant companies shouldn't face enormous penalties for occasional slip-ups. 

Maintaining rigorous HR practices and responding promptly to identified issues helps defend against claims over limited problems. A PEO partner provides ongoing guidance and support to preserve overall compliance. 

The Consequences of PAGA Lawsuits 

A recent California Business and Industrial Alliance (CABIA) report found that employers facing PAGA lawsuits are far more likely to conduct mass layoffs than non-sued employers. In fiscal year 2021/2022, employers with PAGA settlements had WARN notices for layoffs at rates 126 times higher than employers without PAGA claims. 

The report also revealed the substantial costs of PAGA settlements for employers - averaging almost $4 million per case in FY 2022/2023. Attorney's fees averaged over $1 million per case. These unexpected major expenses can jeopardize business operations and jobs. 

Public data shows that employees typically receive a small fraction of overall PAGA settlement payouts, especially since they have to pay their lawyers. Employees may see little benefit while businesses suffer operational harms. 

If you're unsure whether your organization is fully prepared to avoid or defend against PAGA claims, take Easework's free 5-minute HR Risk Assessment. See how your policies, processes, and documentation measure up.  

The average score is 60 - what is yours?