PAGA Claims: California's Latest Scam Against Business Owners
Most California employers don't think about PAGA until a notice lands on their desk, and by then, the exposure is already significant. The Private Attorneys General Act (PAGA) allows a single employee complaint to expand into a company-wide claim, often without the safeguards businesses expect.
In this breakdown, John Fagerholm, Managing Partner at DefendMyBiz, explains how PAGA works, why it creates outsized risk for employers, and what recent legal developments mean for settlement strategy.
What Is PAGA and Why Should Employers Care?
"PAGA is an acronym for Private Attorney General Act," John explains, "and it essentially gives attorneys the ability to sue companies on behalf of the public."
PAGA allows employees to file claims on behalf of the state of California for labor code violations, effectively turning individual complaints into representative actions. The implication is straightforward: a single employee complaint can expand into a multi-party claim, even without evidence that other employees were affected.
John describes PAGA as highly burdensome for employers:
"What this does is it essentially turns what would normally be an individual claim into something similar to a class action, but without the protections of the class certification process."
In a standard class action, a court must formally certify the case before it can proceed as a group claim. PAGA skips that step entirely. There's no certification. No requirement to prove widespread harm. Just one employee, one attorney, and suddenly your entire workforce is potentially in play.
For a full breakdown of how PAGA works, penalty calculations, and what the 2024 reforms changed, see our Complete Guide to PAGA Claims for California Employers.
Where Does the Money Actually Go?
John lays out the financial structure of a PAGA claim, and it's worth understanding before you assume a settlement is just between you and the employee.
Out of the proceeds of a PAGA claim, here's how PAGA settlements are distributed:
75% - State of California (Labor and Workforce Development Agency)
25% - Aggrieved employees
Attorney's fees - Awarded separately based on the case
That 75% figure isn't abstract. John puts a number to it: "It's estimated that the state of California collected $88 million in PAGA penalties in 2019."
John is particularly critical of the law, noting that the scale of revenue generated makes significant reform unlikely: “Based on the revenues generated by this horrible legislation, I wouldn't expect California to want to make any changes anytime soon.”
Can Employees File PAGA Claims After Settlement?
If the structure of PAGA wasn't enough, the California Supreme Court recently clarified that settling an employee's individual claims does not preclude the employee from filing a separate PAGA action. This changes the assumption many employers rely on when settling claims.
The finality employers assumed they were buying with a settlement? John is direct about it:
"What once was a finality to an employment claim is now only a finale to the individual claim as the backdoor has now been left open for the thieves to come back for seconds."
What This Means for California Employers?
John points to a broader pattern he sees affecting California employers: "Is it just me, or is this insanity unsustainable?" he asks. "What's California's goal here? I don't know, but the result is driving businesses out of California."
"Is California leadership just so blinded by greed that they can't see the record number of businesses fleeing to Texas and Nevada?"
To illustrate the sentiment, John invokes a Tony Robbins quote from MONEY Master the Game: "I was born and raised in California, but I left when I realized I was no longer welcome here anymore."
It's a frustration shared by many of the employers John works with. If you're facing a PAGA claim or want to understand your current exposure, the DefendMyBiz PAGA defense team works exclusively on the employer side.
Watch John's full video on PAGA claims below:
Don't Wait Until You're Served
PAGA allows individual complaints to scale into company-wide claims, allocates most penalties to the state, and can still apply even after individual settlements, making early risk assessment critical for employers. It's important to understand that your PAGA exposure early can significantly reduce risk.
If you're assessing potential liability or reviewing a notice, DefendMyBiz works exclusively with employers to evaluate and manage PAGA-related claims. Schedule a free 15-minute consultation today.
FAQs
Can one employee really file a PAGA claim on behalf of my entire workforce?
Where does the PAGA settlement money actually go?
If I settle with an employee, am I protected from a PAGA claim?
Why does PAGA result in settlements higher than the original claim's value?
Disclaimer: The above content is for informational purposes only. This is not legal or tax advice. Laws, IRS guidance, and withholding requirements can change, and outcomes depend on specific facts. You are advised to contact a qualified attorney for any legal advice.
