Estate Planning For Asset Protection in the Age of PAGA

(a Business Owner’s Must Read)

The State of California has different ways of dealing with Labor Code violations. One of the most prominent provisions is PAGA, essentially a state law that allows individual employees to bring a lawsuit against their employer on behalf of the state. While PAGA and Labor Code violations are not the typical subject matter of a transactional planning attorney, this problem is so pervasive, we felt the need to address this from a risk management and liability perspective. After all, planning is the act of identifying a problem and then solving it. Massive potential liability for employers is the problem and asset protection planning can be part of the solution.

Under PAGA or Private Attorneys General Act, if the suit is successful, the plaintiff (or employee) can recover some portion of penalties otherwise paid to the state and attorney fees. It can also be critical and highly dangerous for employers and businesses, as these claims are on behalf of all employees and the damages can be several hundred thousand dollars. Thus, understanding how its multiple moving parts apply to your situation can help California companies like yours avoid liabilities for PAGA claims in unfortunate circumstances.

PAGA CLAIMS CAN PRESENT HUGE RISKS FOR BUSINESSES

California has long prided itself as an employee-friendly state shifting the sand for employers requiring them to stay ahead of the curve and keep thriving in this rapidly evolving employment landscape. But PAGA claims have been highly overwhelming and can feel like extortion for some employees and their legal counsel.

Sure, it’s a means for protecting the rights of employees. It allows them to file a lawsuit for themselves, other employees, and the State of California. But it is supposed to work against deadbeat employers. In many other cases, it only loads the pockets of attorneys and does very little for the employees. And, many violations are nothing but technical in nature, such as a clock out 1 minute beyond the mandated break period. This is why the actual Attorney General of the State of California is not pursuing these claims, but that has no bearing on the ability of the employees to file a PAGA suit.

PAGA was enacted in 2004 to boost the enforcement efforts of the Labor Commissioner’s Office in California and allow those who’ve had their labor rights violated to sue and seek damages. This is very different from traditional suits, with penalties ranging from:

• $100 to $200 per day for initial violations
• $200 to $1,000per day for subsequent and intentional violations.

These figures can vary depending on the number of people affected, severity, frequency, and many other factors. Also, the penalties have skyrocketed in recent years.

The plaintiff must send a notice to the State of California within a year of the violation and wait for 65 days before filing a lawsuit. Upon succeeding at the suit, the penalties are split on the total amount between employees (25%) and the state (75%).
PAGA suits are time-consuming to defend, damage your business reputation, and can disrupt business sales and mergers. There can also be an unimaginable setback to acquiring wealth and retirement.

ASSET PROTECTION AS A SOLUTION

Estate planning, generally speaking, keeps families out of Probate Court and ensures assets are transferred in the easiest and most efficient way to loved ones. But, business owners who have acquired substantial wealth may also need to create trust and other entities so their assets can be transferred out of their names during their lifetimes to ensure creditors cannot access those assets in a worst case scenario. Typically, these vehicles also provide long-term tax benefits if a business owner has a large estate. Although it can be complex and require various legal and tax considerations, working with a professional can help you appropriately meet your needs, including the potential for continuing to control key assets in your estate and continuing to receive income.

There are varying degrees of asset protection, from creating trusts managed by individual off-shore to domestic asset protection trusts. Many of our clients feel uncomfortable moving assets out of country, and prefer to keep everything located in the United States. There are many strategies that do not require going out of country. Families may also select a trustee that is a person or institution with whom they already have a relationship, such as their business bank. Business owners can rest easy knowing options exist to protect assets from potential creditors and large judgments. If PAGA or other substantial risks of loss exist in your business, you should consult with an advanced estate planning attorney to evaluate options for asset protection.

LET NM LAW HELP EVALUATE ASSET PROTECTION STRATEGIES FOR YOU

PAGA was devised for the betterment of the employment. But, the truth is that many ethical and dedicated business owners are bearing multiple lawsuits and paying out millions to the State for technical violations. If you’re exposed to this risk, with a similar situation, contact the NM Law experts to navigate the way forward and protect your estate so it isn’t lost during these proceedings.