PAGA Drags on California’s Economic Recovery
By Sahil Nandwani
October 30, 2021

California small businesses are just now beginning to get back on their feet following the chaos caused by the coronavirus pandemic. Unfortunately, Sacramento’s continued hostility towards the private sector is preventing the state from achieving a full economic recovery. For those in the small business community who were lucky enough to survive last year’s strict lockdowns and steep drop-off in consumer demand, this is unacceptable.

The Private Attorneys General Act (PAGA) stands out as one of the state’s most corrosive legislative failures. Among the large heap of other damaging policies enacted over the years by California lawmakers, the negative effects of this bill are felt in every corner of the state’s economy. With a few simple tweaks, however, this well-intentioned law – which has devolved our state’s justice system into an absolute mess – could be greatly improved.

PAGA was originally enacted to allow “aggrieved employees” to pursue legal action to recover civil penalties from their employers if they believe their rights have been violated. Instead of targeting bad actors who take advantage of their employees, it has opened the flood gates for dishonest trial lawyers in search of a quick buck to file a wave of frivolous lawsuits against vulnerable small businesses.

Trial lawyers have taken advantage of the broad nature of which the law was written to overwhelm state courts with malicious claims over trivial issues. Businesses have been sued for ridiculous accusations such as building a wheelchair ramp one degree too steep and not installing a water fountain properly in their facilities. Across California, businesses have been forced to pay millions in damages for “violations” just like these.

Without the proper guardrails embedded in PAGA to prevent these types of malign lawsuits from being considered, lawyers can recruit handpicked clients to go along with their profiteering schemes. This makes a mockery of our judicial system by clogging up state courts and preventing judges from spending time presiding over more important cases.

In addition, and possibly more importantly, these bad-faith claims have severe economic consequences. Not only do they drive up costs for businesses by forcing them to fight drawn-out court battles to prove their innocence, but they also compel companies to raise prices on their customers to cover the financial loss associated with expensive litigation. In the end, all California consumers end up paying more for essential goods and services.

In this post-pandemic inflationary environment, another government-imposed mandate that applies upward pressure on prices is the last thing Californians need.

While larger companies have the financial resources to absorb the costs that come with fighting these phony claims, many mom-and-pop shops lack the means to defend themselves. This predicament forces many vulnerable businesses to either settle before trial or file for bankruptcy. Greedy trial lawyers prefer quick resolutions allowing them to bounce from case to case without getting bogged down in actual court proceedings.

This deceitful maneuvering must be reined in. Not only does the closure of local businesses tear at the fabric of communities across California, but it also adds to the toxicity that is driving state residents to places like Texas and Arizona. To reverse this trend, we need real change that fosters economic growth and free enterprise.

Lawmakers in Sacramento must come together and put PAGA reform on their agenda in the next legislative session. The need for relief from frivolous lawsuits is urgent. Small business owners should not have to live in fear of having bad faith claims filed against them by disgruntled employees.


Sahil Nandwani
Sahil Nandwani is the Managing Director and CEO at HKN Ventures and is on the Leadership Council for the National Small Business Association. He lives in Glendale.

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