California's hated PAGA law is being tempered

Government Watch: Gov. Newsom has agreed to a compromise that will guarantee the pro-labor legislation lives on, though in weaker form.
Gov. Newsom brokered another compromise affecting the restaurant business. | Photo: Shutterstock

Government WatchWelcome to Government Watch, a new Restaurant Business column focused on regulatory, legislative, labor and other governmental issues of relevance to the restaurant industry.

Restaurants in California might have felt like it was déjà vu all over again.

As operators there are likely aware, they and their allies were ready to overturn the Public Attorneys General Act, a much-hated state law, through a referendum in the next general election. On Tuesday, Gov. Gavin Newsom diverted the effort by brokering a deal among the key stakeholders for an alternative course. No one says they’re ecstatic about the compromise agreement, but it does make them less unhappy. And all parties will be spared hundreds of millions in lobbying expenses to woo voters before the ballot vote.

The turn of events parallels what happened with the Fast Act, the landmark piece of legislation that would have had more of an impact on the local business than any law since the Americans with Disabilities Act. Under a compromise that left all parties muttering curses, a planned referendum to overturn the Fast Act was dropped in exchange for legislation that tempered the law’s impact.

There’s far less grumbling about Tuesday’s deal because it will temper what’s been a nightmare for all employers in the state, restaurants included. Yet few operators outside of California were aware it existed, even as New York and other states look to copy the measure.

The Private Attorneys General Act is better known as PAGA, a measure that in effect turns employees into California Department of Labor (DOL) deputies in enforcing state labor regulations.

If an employee witnesses a violation on the part of an employer—be it theirs or someone else’s—the observer is obliged to report the alleged infraction to state regulators. A body called the Labor and Workforce Development Agency has 65 days to take action. If it doesn’t, the complaining employee can sue the accused employer on behalf of themselves, employees of the accused and the state itself. The plaintiff stands to collect 25% of whatever a court decides is an appropriate penalty, though the state insists the law isn’t intended to foster bounty hunting.

Employers have a different take. They contend that lawyers have co-opted the 20-year-old law into a big moneymaker for their firms—to the tune of billions of dollars per year. They liken the situation to the drive-by ADA lawsuits that proliferated 20 years ago, when officers of the court would coach potential plaintiffs into filing legal actions against a business for the slightest hint of noncompliance. But in this case, the typical settlement is reportedly over $1 million.

The burden had become so great for restaurants and other employers that business groups had taken action. They’d succeeded in getting a referendum on the November ballot to overturn the law.

Enter Newsom. On Tuesday, his office announced that he’d brokered a deal to temper PAGA’s impact. In exchange, opponents have agreed to drop the referendum.

The agreement has yet to be codified into a new law. But the participants aired the principles that will influence the legislation, specifically:

  • Employers’ penalties will be capped if the business has a good record on employment practices and acts quickly to correct any source of a complaint.
  • Penalties will be increased on businesses that “maliciously, fraudulently or oppressively” violate labor regulations, according to the governor’s office.
  • Employees who bring a PAGA suit will keep 30% of any settlement, an increase from the prior take of 25%.
  • Only employees who have themselves been negatively affected by an infraction can bring a lawsuit. The provision is intended to discourage outright bounty hunting.
  • In a clear concession to employers, the legislation will clarify what government agencies can fix regulations that gave rise to employee complaints, thereby eliminating the need to litigate for relief.

The compromise drew praise from the California Chamber of Commerce. In a statement, CEO Jennifer Barrera said, “This package provides meaningful reforms that ensure workers continue to have a strong vehicle to get labor claims resolved, while also limiting the frivolous litigation that has cost employers billions without benefiting workers.”

The California Restaurant Association was not among the stakeholder groups quoted in Tuesday’s announcement of the deal.

A Fast Food Council in different guise?

Meanwhile, an echo of the Fast Act can be heard loud and clear in Minneapolis, where the City Council has greenlighted a plan to create a panel similar to California’s Fast Food Council, albeit with more-limited powers. The legislative body voted at the end of February to clear the way for the formation of a non-government body called the Labor Standards Board.

Like the Fast Food Council, the panel would include proxies for both workers and employers, and could call for changes in workplace regulations and even pay. Unlike the Council, its recommendations are only that—suggestions, not directives with the force of law. And its focus extends to all workers in the state, not just fast-food or even recent workers.

The fear is that the Labor Standards Board could turn most of its attention on a single splinter of the city’s economy, like its fast-food business, or maybe the restaurant industry in general. Plus, though its recommendations are non-binding, the Council could slip into rubberstamp mode, reflexively okaying whatever the board puts forth.

Proponents of the Board say it’d provide workers with a voice on their own working conditions and pay, the same argument used in support of the Fast Act. They contend it’s a matter of creating opportunity for those outside the economic mainstream.

That contention was challenged this week by a letter from local restaurateurs who identified themselves as persons of color. The 41 signees urged the Council to reconsider the formation of a Board because its output would likely further burden small businesses that are struggling already to stay alive.

“We are trying so hard to make it in Minneapolis and more changes and more regulations will not make it easier,” the communication reads. “Passing the proposed Labor Standards Board will reshape the Minneapolis dining scene for the worse. It will force many across the food scene to stop investing in Minneapolis and take business to other cities or states.”

The operators who signed the letter include Ann Kim, Christina Nguyen, Tracy Wong and McDonald’s operator Melissa Kennedy.

It’s the latest battle in the industry’s escalating war against what’s called sectoral bargaining.

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