Most Californians view on-demand rideshare platforms such as Uber as a helpful tool to simplify their commute. For the state’s trial attorneys, Uber was just another easy mark.
The Los Angeles County Superior Court recently announced a $7.75 million settlement in a Private Attorneys General Act lawsuit against the company. It was a pyrrhic victory for the attorneys, however; the case documents expose the real beneficiaries of PAGA complaints – and it isn’t the drivers.
PAGA has been making plaintiffs’ attorneys rich since 2004 – at the expense of employees, employers, the state and just about everyone else. PAGA “deputizes” employees to exact penalties from employers for just about any violation of the California Labor Code, which is more than 1,300 pages long, single-spaced, in 10-point font. And it doesn’t matter if an employer intended to violate the law – literally any violation, no matter how technical or innocent – is a PAGA violation.
That single violation gives that employee the right to represent every employee that is said to be “aggrieved” for the same reason (e.g., an inaccurate paystub).
The penalty for the first offense is $100 per pay period. And the penalty doubles to $200 per pay period in certain circumstances. Penalties accrue per pay period, per employee, for up to a year, unless the employer fixes the problem. Employers generally have no right to “cure” or fix the problem, even if they had no idea they were doing anything wrong.
In Uber’s case, a lawsuit was filed claiming that the drivers were employees, and not the independent contractors that they actually are. This distinction matters because employees in California are guaranteed certain rights, like a minimum wage, meal breaks, rest breaks and itemized paystubs. The case got nowhere near trial. Instead, after several failed attempts, a California state court approved a $7.75 million settlement of the lawsuit, covering more than 1.5 million drivers.
A windfall for the drivers? Not so fast. The case document shows that the attorneys took a $2.33 million cut of the settlement, and the state took more than $3.6 million. The remaining money was split among the relevant drivers who each took home $1.08. (That’s not a typo.) Chalk up one for the little guy!
The California legislature created PAGA because its agencies didn’t have the resources to enforce the 1,300-page Labor Code. So it created a “bounty” for plaintiffs’ and their attorneys to enforce the law for them. Under the statute, 75 percent of the penalties are supposed to go to the state, and 25 percent are supposed to go to the employee. But as the Uber case demonstrates, that’s never how it really goes.
In reality, plaintiffs file PAGA lawsuits alleging penalties in the millions or billions of dollars. But these cases rarely, if ever, go to trial. The vast majority are settled for pennies on the alleged dollar – like the Uber case. The California agency responsible for enforcing PAGA estimated that the Uber claim could exceed $1 billion. But the case settled for $7.75 million, or 0.0075 percent of the penalties calculated by the California agency.
I know what you’re thinking: why would the plaintiffs’ lawyers settle much less than pennies on the dollar? Because they get to take 30 percent off the top (or more) for their trouble – and that’s not pennies. Just ask the plaintiffs’ attorneys in Uber, who walked away with $2.3 million while putting just over $1 in the pocket of the average Uber driver.
Maybe you’d take that deal, too. But it’s time the California legislature puts a stop to this scam.
Tom Manzo is president of Timely Industries in Pacoima and founder of the California Business & Industrial Alliance.