Legal Niche Exploiting California's Businesses Suffers a Supreme Court Blow

Legal Niche Exploiting California's Businesses Suffers a Supreme Court Blow
The Supreme Court building in Washington on June 21, 2022. (Anna Moneymaker/Getty Images)
John Moorlach
With the U.S. Supreme Court's recent 8-1 ruling in Viking River Cruises, Inc. v. Moriana (pdf), limiting the ability for employees to sue under California’s Private Attorneys General Act (PAGA), state lawmakers are faced with a unique opportunity to finally fix a problem that has long weighed our state’s economy down. That is, if they have the courage to do so.

PAGA was originally created in 2004 as a way to allow individual employees to step into the shoes of state regulators and file suit against their employers instead of going through the arbitration process. The intention was to give employees more power to resolve disputes and hold companies accountable for violating state labor laws.

However, since its passage, PAGA has been increasingly abused by predatory trial attorneys who have made a fortune from threatening small businesses into quickly settling alleged PAGA claims, which can be as innocuous as a typo on a pay stub. For reference, there are 9,110 sections in the California labor code. Honest mistakes by employers can result in massive fines under PAGA that have forced owners to shut down all together, killing all the jobs attached to their business.

One contractor in the city of Orange recently had to pay a $150,000 settlement to be released from this nuisance lawsuit. Call it a form of legalized embezzlement.

Thankfully the U.S. Supreme Court has blocked PAGA’s ability to circumvent the arbitration process. While arbitration agreements are not always foolproof, they can be a helpful tool in preventing inane lawsuits from being filed in the first place. The reasoning is simple: if an individual knows they will have to go through arbitration to settle a dispute, they are less likely to file a lawsuit unless they have a strong case. As a result, arbitration agreements can help dissuade individuals from filing frivolous lawsuits, saving both parties time and money.

In my final year in the State Senate, I strongly considered pushing legislation that would have, similarly to this decision from the Supreme Court, allowed employers to enter arbitration and settle disputes with employees in a mutually advantageous way. Unfortunately, like most meaningful reforms in Sacramento, the possible legislation’s fate was likely destined for failure coming from a Republican legislator in a competitive election year.

Besides, years of intense lobbying fights between businesses and the trial attorneys, dubbed the “tort-wars,” largely resulted in a stalemate on this issue. However, the Supreme Court’s decision has clearly scrambled the battlefield. I strongly encourage my common-sense minded former colleagues of both parties to use this as an opportunity to bring balanced reform to this issue and bring an armistice to the “tort-wars” once and for all.

Restoring arbitration agreements isn't going to fix PAGA entirely.

Balance on this issue would mean employers have an opportunity to remedy potential labor law violations before being sued. Balance would also mean when cases do go to court and result in penalty awards for the employees, recovered funds have be used to benefit the employees allegedly harmed by the labor law violations, and not just for the lawyer’s payday.

With the Supreme Court placing the issue of PAGA front and center on the legislative docket, now is the time for California lawmakers to reform the law and limit the incentive for attorneys to leverage it for abusive lawsuits.

If done correctly, the legislature can protect businesses from abusive PAGA lawsuits while still allowing employees to take action when their employer has truly wronged them. Balance isn’t always easy to achieve, but it is always worth pursuing.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
John Moorlach is the director of the California Policy Center's Center for Public Accountability. He has served as a California State Senator and Orange County Supervisor and Treasurer-Tax Collector. In 1994, he predicted the County's bankruptcy and participated in restoring and reforming the sixth most populated county in the nation.
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