Legislator warns against lawsuit abuse

leaving california hitchhiking cartoonWhen California’s Republican legislators warn that high taxes, onerous regulations and frivolous lawsuits are driving businesses out of California, they are not only talking about corporations like Toyota, which is relocating from Torrance to Plano, Texas. They are also concerned about smaller businesses like Weststar Trucking and Cranes in Shafter and B&L Casing in Bakersfield, which are also Texas-bound.

The owners of those companies, speaking at a Republican Caucus press conference last month on the steps of the state capitol, said they can no longer afford to remain in California. Both have been sued for minor labor code violations, which can lead to major penalties under California’s Private Attorneys General Act of 2004.

Lawsuit abuse

Weststar owner Dan Correia explains the situation:

“We have two of those lawsuits. The first one is bogus. The attorney … just wants to do discovery. He’s going to go in and comb through our records and try to find other violations that he can apply the PAGA penalties to. We’re spending thousands of dollars, $38,000, in representation for the first claim.

“The second one is the attorney is telling us we have the wrong name on our paycheck. We know it’s the right name. We met with them and said, ‘What can we give you to convince you that that’s the right name on the paycheck?’ He said he didn’t care, he didn’t need anything, it will all come out in discovery.

“So it’s just a door opener. They want to try to go through our records to find one little labor code violation that they can find to add those $2 million in penalties to. We just can’t continue to do it. I have been here 28 years with our business, and we bought property in Corpus Christie. We can’t stay in business and stay in California any longer.”

A similar tale was told by B&L Casing owner Larry Jenkins, who has been in business in California for 26 years.

“They filed everything they can. It comes like a shotgun effect. They throw everything at you, and then they go through your records. This is the second time around for us. This is a little more drastic.

“But basically ours was a bonus system that we gave our employees a dollar an hour for being safe, for every hour they worked being safe and turning in their paperwork correctly. And that was put on their paychecks and they get paid every two weeks.

“[The labor code] says you have to pay time and a half, double time if it’s tied to their hourly wage. We didn’t know that. And they went back five years. The total five years for the damage to the people was $90,000. And then they come back with the PAGA, and we went into arbitration. They want $14.5 million from us. Long story short, at the end of the day we settle for $1.5 million.

“The bonuses are gone, we’ve taken those away. We would have gladly settled and paid for any damage we had done to them. But the law states that there’s no time to go back and try to cure anything. I have bought property in San Antonio, Texas. And I too am moving my people out of California. The arbitrator said this is California’s legal way of extortion.”

Limiting “extortion”

Those businesses are in the district of Assemblywoman Shannon Grove, R-Bakersfield. She has introduced Assembly Bill 588, which is designed to limit or end that “extortion.” It allows employers to fix alleged labor code violations within 33 days of being provided written notice by an employee. If the business does so, the employee would not be able to sue under the PAGA regulations.

Assemblywoman Shannon Grove

Assemblywoman Shannon Grove

Those regulations can be quite punitive, with a $100 penalty per paycheck for the first pay period and a $200 penalty for every paycheck thereafter going back as many as 52 pay periods, according to Grove. This bonanza for trial lawyers has led to a 413 percent increase in lawsuits against employers.

“Back when this law was passed, it was known as a ‘sue-your-boss’ law,” she said at the press conference. “PAGA was [designed] to prevent employers from abusing their employees, and that’s a good thing. But recently the law has been perverted into a money-making machine to benefit trial lawyers.

“All of these lawsuits start out as wage-and-hour, meal-and-rest-period lawsuits. But they never seem to go back that direction, because during discovery it’s easier to go after an employer for a simple paycheck violation. Thousands of California businesses are being hit by multimillion dollar lawsuits over trivial paycheck violations.”

Grove held up a mockup of a paycheck stub showing an example of a labor code violation: it listed the pay period ending date but failed to also provide the pay period beginning date. Businesses can also be subject to fines for failing to provide their complete legal name or bank address on the stub, she said.

“Businesses are tired of what is going on in the state of California,” said Grove. “Our employees are suffering for it. Jobs are leaving the state. Jobs are not being created or expanded on, and it’s really sad. This particular law, in my viewpoint, is ruining companies, killing jobs and destroying lives. And it’s time that it stop.”

Employment Lawyers Association oppose bill

Opposition to AB588 comes from the California Employment Lawyers Association, according to the bill’s legislative analysis. According to CELA:

“This bill would create a dangerous precedent by relegating an important Labor Code workplace protection to a status of lesser importance and reduced enforceability. [The code] contains some of the most basic employment obligations of employers in this state. … The harm done by an employer that fails to issue accurate and complete wage statements cannot be overstated.

“Not only do employees rely on the contents of their wage statements to ensure that they are being paid all wages they have earned for all hours they have worked, but those statements are critically important in … enforcement actions as well. Without accurate and complete employee wage statements, the burden on enforcement agencies and the courts will escalate substantially. That, in turn, will degrade enforcement and increase the state’s enforcement costs.

“The information required to prepare wage statements correctly is entirely within the employer’s control; the information is important to employees and the burden of full compliance is not onerous; and the creation of accurate pay records is essential to any retrospective review conducted by any court, employee, employer, or government enforcement authority or taxing agency.”

The bill had been scheduled to be introduced at the Assembly Committee on Labor and Employment on April 22. But Grove pulled it from consideration because the committee “wants to put their own PAGA reform bill together over the next month or so,” said Greg Burt, Grove’s communications director. “The details aren’t worked out yet. They realize there is a problem and they want to fix it. So this issue isn’t dead.”

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