PAGA and the Upside of Inflation

Taking time to catch up since the monthly inflation report comes out this week… 

Here are the latest Economic Expectations courtesy of the Kiplinger Report:

• GDP for 2022: 2.0% and 0.7% in 2023 – instead of 2022 sucking wind (2% is nothing to brag about, though), it seems that 2023 could be the issue.

• 10 year note: 3.3% peak in 2022 and then starts coming down – that would be nice. Many mortgage rates loosely track the 10 year note.

• Inflation: peaks at 9% and reduces to 8% at year end 2022; at least that’s a start. It really would not be good for it to go higher.

• Unemployment: 3.6% at year end 2022 and 4.5% year end 2023.

  • Is 4.5% that bad? Well, if you are the one unemployed, it is. Otherwise, not really.

    • Once it gets into the 5%+, yes.

There is more economic news out this week, so look for an update next Monday.  In the meantime… 

The upside of inflation – you did not misread that.

• Income tax brackets – among other tax items - will be wider in 2023 because they are annually indexed to inflation.

• Other tax breaks will also increase, like standard deductions, IRA pay-in caps and income limits on certain bonds that can be used for education.

• Who knew there could be a silver lining?

PAGA News!!   Wait, what is a PAGA, anyway?

• If you are outside of California, you really have no clue, so you might just skip the rest since it doesn’t pertain to you.

• If you are a California business owner, fasten your seat belts and get your notebook out.

• It is the Private Attorney’s General Act, put together in 2004. That’s when Schwarzenegger was governor and it was written when Gray Davis was governor.

  • That just seems like a lifetime ago.

  • A law so wonderfully obfuscating that it took attorneys about 8 years to figure out how to make it work in their favor.

    • Loosely translated, how they could make money out of it.

• At any rate, in a PAGA claim, an individual current or former employee can sue a current or former employer as an agent or proxy of the state. That means they can sue your business even if they are not harmed by whatever action it might be, like a misspelling on a paycheck. And do it on behalf of the state.

• It also allows that individual to bring claims against the employer that involve workplace violations that happened to someone other than the plaintiffs. By the way, a violation does not have to impact the employee.

  • And California specifically stated that employee arbitration agreements are not applicable since the employees were suing on behalf of the state.

    • It’s like Deputy Dawg deputizing citizens to form a posse to go after the bad guys; you’re not really the sheriff, but you can act like one.

    • So if your business was 20 employees or less, this didn’t hit your radar because it’s not worth an attorney doing it – there’s just not enough money in it for the law firm.

    • If you are 50 or more employees, well, now there might be some volume.

  • At any rate, the key issue is that the worker arbitration clause the employee signs when they come on board to your company, did not apply under PAGA.

    • Until this past June.

• That’s a long preamble to explain that this past June, the Supreme Court (yes, the one that everyone is in a tizzy about) ruled 8-1 (Clarence Thomas dissenting) that the Federal Arbitration Clause cannot be overridden by the State of California.

  • That is very good news for California employers.

  • While it does not eliminate the suits, it does limit them significantly.

• If you were savvy enough to have arbitration agreements as part of your employer/employee documentation, you can arbitrate individually and not as a class action.

• There are two key benefits:

  • There is no jury to award damages above and beyond expectations – because it is arbitration only.

  • Consequently, it’s less appealing to the law firms.

• However…

  • The employer bears the cost of the arbitration, so theoretically plaintiffs counsel could assemble hundreds of employees and “twist the arm” (blackmail) of the employer with many arbitration cases forcing a settlement. Since each arbitration case can cost from $30,000 to $50,000 (or more), that could be costly, but not likely at this point in time.

Whew!!  Talk to your HR or workplace attorney about these changes.  If you were trying to reach a settlement prior to this decision, odds are you may not have to or it will be a lot cheaper.

Next week – the first 90 days for a new hire are key to keep them with your firm.