Meritless Private Attorneys General Act (PAGA) lawsuits are now a fiscal liability for the state of California.
Following a three-week bench trial in early 2023, Hobby Lobby secured a victory in a PAGA case regarding suitable seating.
It had been litigating the case since 2017 and incurred significant costs defending its position. After winning at trial, Hobby Lobby sought to recover its costs (excluding attorney’s fees) from the California Labor and Workforce Development Agency (LWDA) as the prevailing party under Code of Civil Procedure section 1032.
What is unique about PAGA is that it is a “qui tam” statute. Although a PAGA case can be filed by an individual worker, that worker is viewed as essentially standing in for the state. California’s LWDA is considered to be the real party in interest in the case, not the plaintiff.
Because of this, certain rules do not apply to PAGA cases. For example, PAGA plaintiffs can file lawsuits alleging violations they never experienced, they can settle their individual claims while continuing to serve as a PAGA plaintiff, and PAGA claims cannot be compelled to arbitration regardless of whether the plaintiff signed an arbitration agreement. The lack of guardrails surrounding PAGA case, and the law’s steep penalty structure incentivize filing cases regardless of whether the claims have merit.
Because the LWDA has been declared the real party in interest in a PAGA case, Hobby Lobby argued that the LWDA should be responsible for paying its costs despite not being a formal party to the lawsuit. The Alameda County trial court agreed, ordering the LWDA to pay $125,000.
The employer community has been arguing for years that PAGA’s enabling of frivolous lawsuits is a danger to California’s economy because it deters business expansion in the state and stunts job growth. Now, courts are also holding the state directly liable for the costs incurred by defendants who win at trial. This will surely only incentivize more lawsuits because attorneys now know that California, not them, will be left holding the bill if they lose at trial.
California, its employees, and its employers deserve a better system.
That is why CalChamber has joined the FixPAGA coalition advocating for much-needed reform.
