While California is known for its booming tech industry, cultural diversity, and entrepreneurial spirit, it also holds another—less flattering—distinction: it is one of the most litigious states in the country when it comes to employment law.
With some of the most employee-friendly statutes, judicial precedents, and regulatory frameworks in the U.S., California presents a uniquely high-risk environment for businesses of all sizes. What may be considered a routine HR matter elsewhere can escalate into costly litigation in this state.
Paul P. Cheng, Esq., a former prosecutor and now one of Southern California’s most respected trial attorneys, offers a legal insider’s perspective on why California has earned its reputation as a “lawsuit magnet” for employers. In this article, he breaks down the major legal pitfalls and provides practical guidance for companies looking to stay compliant, mitigate risk, and navigate the ever-shifting employment law landscape.
1. The One-Way Attorney’s Fees Rule: Zero-Cost Lawsuits for Employees
Under California’s Fair Employment and Housing Act (FEHA) and Government Code Section 12965(c)(6), prevailing employees are entitled to recover attorney’s fees, while employers can only do so by proving the claim was frivolous, unreasonable, or groundless. Even then, courts retain discretion to deny fee reimbursement to employers—as emphasized by SB 1300 (2019) and Scott v. City of San Diego (38 Cal.App.5th 228).
In the wage and hour context, Labor Code §§218.5 and 1194 similarly favor employees. For example, in Aleman v. AirTouch, courts confirmed that successful claims for minimum wage or overtime entitle employees to attorneys' fees, but employers must meet the high bar of proving the lawsuit was brought in bad faith to recover their own fees.
This “one-way fee shifting” framework removes financial barriers for employees to file suit, incentivizing even marginal claims and increasing litigation frequency.
2. Wage and Hour Minefields: From Dynamex to PAGA
California’s rigid wage and hour laws present two major threats to employers:
A. The “ABC Test” for Independent Contractors
The landmark Dynamex Operations West v. Superior Court (2018) ruling, codified in Assembly Bill 5 (AB5) in 2019, established the strictest independent contractor test in the country. To classify a worker as an independent contractor, employers must prove:
(A) The worker is free from control and direction;
(B) The work performed is outside the usual course of the hiring entity’s business;
(C) The worker is engaged in an independently established business.
This standard has exposed companies—especially in the gig economy—to massive liability for misclassification. While some professions are exempt, most industries are still bound by the ABC Test.
B. PAGA: California’s “Private Attorney General Act”
Enacted in 2004, PAGA allows employees to sue on behalf of the state for Labor Code violations, collecting $100–$200 per violation per employee. Unlike class actions, PAGA claims don’t require certification, meaning a single employee can bring a claim representing all similarly affected coworkers statewide—exponentially increasing employer exposure.
While Viking River Cruises, Inc. v. Moriana (2022) offered some hope by allowing arbitration agreements to limit PAGA claims, California’s AB 51 aims to restrict mandatory arbitration, keeping the legal landscape uncertain.
3. Judicial Bias: Low Dismissal Rates and High Jury Verdicts
A. Summary Judgment Rarely Granted
From 2018 to 2022, only 3.4% of employment cases in California federal courts were dismissed on summary judgment (Lex Machina). Judges frequently view employment disputes as fact-intensive and prefer leaving them to juries, significantly increasing litigation costs for employers.
B. Jury Awards Vary Widely by County
According to Lexis Verdict Analyzer, average jury verdicts between 2019–2022 were:
- Los Angeles County: $14.1 million
- San Francisco County: $7.2 million
- Orange County (more conservative): $325,000
The wide disparity underscores a strong employee-favoring bias, especially in traditionally progressive jurisdictions.
4. Insurance Response and Risk Mitigation Strategies
Insurers are increasingly cautious with California employment practices liability (EPL) coverage, often imposing higher deductibles and premiums—or exiting the market entirely.
To manage risk, employers should consider a multi-pronged approach:
Preventative Policies
- Maintain a clear, updated employee handbook
- Implement regular anti-harassment and compliance training
- Ensure lawful, transparent wage and hour practices
Well-Crafted Agreements
- Include arbitration clauses with enforceable PAGA waivers, referencing Viking River where applicable
- Design severable arbitration terms to improve enforceability
Litigation Strategy
- Use California Code of Civil Procedure §998 offers to encourage early settlement
- Opt for arbitration where possible to avoid unpredictable jury outcomes
- Focus on defeating class certification or limiting PAGA scope early in litigation
Insurance Optimization
- Work with specialized brokers to isolate California risk and negotiate tailored EPL policies
- Separate California operations from national risk pools when possible
Navigating a Hostile Legal Climate
California’s unique blend of statutory, judicial, and cultural factors creates the most employer-adverse legal climate in the country. To operate successfully in this environment, businesses must adopt a proactive, layered strategy—one that emphasizes compliance, legal preparation, and insurance protection.
Protect Your Rights. Take Action Today.
At the Law Offices of Paul P. Cheng, we have extensive experience representing both employers and employees in complex labor disputes. Whether you’re an employee questioning your classification, or an employer seeking compliance guidance, our team is here to help.
For a confidential consultation, call us at 626.356.8880 or email us at info@pprclaw.com.