California Is Sitting on Millions of Dollars That Could Be Used to Boost Wage Theft Response

Despite reports of severe understaffing at California’s labor agency that has hampered its ability to respond to a rise in complaints about wage theft and other labor violations, millions of dollars reserved for enforcing state labor laws still go unspent each year.

That pool of unused money comes from the state’s cut of the settlements and fines that businesses pay in response to lawsuits stemming from a unique California labor law — known as the Private Attorneys General Act (PAGA) — that allows workers to sue their bosses.

For years, the fund has grown faster than lawmakers and Gov. Gavin Newsom has directed it to be spent, CalMatters’ analysis of state budget documents shows. In 2022–23, they left $197 million in the fund unspent; the 2023–24 budget leaves $170 million unspent.

The state draws from the fund each year for portions of the Labor Commissioner’s budget. And the fund has paid for some worker outreach and enforcement. Those programs include $8.6 million in recent grants to 17 local prosecutors to pursue criminal charges in wage theft cases and a pandemic-era partnership with community groups to inform workers in 42 different languages about workplace rights.

However, the fund’s single biggest use in the past five years has been to shore up the state budget. In 2020, the state borrowed $107 million from the labor fund for uses other than direct labor enforcement. In April, an early budget deal between Newsom and legislative leaders allowed the state to borrow another $125 million as they sought to reduce a record shortfall.

Neither of these loans needs to be repaid until at least 2027. The administration has proposed to leave $119 million in the fund unused in the 2024–25 budget that it’s negotiating with lawmakers this month as part of an effort to cover the remaining $28 billion shortfall.

The state’s use of the fund has frustrated businesses and labor groups alike, who say the state should spend much more of the money to help the Labor Commissioner’s Office hire or retain more staff needed to process a record number of workers’ wage theft claims.

In response to questions from CalMatters, Department of Industrial Relations spokesperson Erika Monterroza wrote in an email that the loans are not unusual during budget deficits and only come from money that’s not being used. She said $7.6 million from the fund is already allocated this year to processing wage claims.

But the department has struggled to fill those new positions. A state audit released in May found that a slow hiring process and lower salaries than some comparable state and local government jobs partly cause the staff shortages.

Monterroza said it’s out of her department’s hands whether the money could be used to increase salaries or speed up hiring, saying that must be bargained with state employee unions. Newsom’s office declined to comment, referring questions to the department.

How the fund is used is a key issue in ongoing negotiations between labor and business groups over changes to PAGA. Business groups, who backed a November ballot measure to repeal the law, say they will take the measure off the ballot if substantial changes can be agreed on.

Recent polling suggests voters support a legislative fix over a ballot measure. The sides face a June 27 deadline for the Legislature to approve changes.

Any deal to avert the costly ballot measure will likely address how to spend the enforcement fund.

“The Labor Commissioner’s Office has hundreds of millions currently available,” said Kathy Fairbanks, a spokesperson for the coalition of employers sponsoring the ballot measure. “We strongly support using these funds to quickly hire and train staff to help resolve employee claims.”

Between 30,000 and 40,000 workers file wage theft claims with the office annually. The state audit found chronic understaffing has led to a backlog of 47,000 cases, and the claims regularly take six times longer to resolve than state law allows.

Lorena Gonzalez, leader of the California Labor Federation and a former state assemblymember, said labor groups have advocated in past budgets to allow Labor Commissioner Lilia García-Brower to use the money to address the backlogs.

“Obviously, we have a crisis, and we have been asking and pushing the Legislature and the governor to beef up spending to hire up,” Gonzalez told CalMatters. “We were having a hard time getting attention. It’s one of many examples that it’s not a priority to process wage theft claims.”

The Assembly’s current and former labor committee chairpersons, San José Democrat Ash Kalra and Hayward Democrat Liz Ortega, both declined to comment. State Sen. Lola Smallwood-Cuevas, a Los Angeles Democrat who leads the Senate labor committee, could not be reached for comment last week.

California Chamber of Commerce CEO Jennifer Barrera also said she supported using available money to increase staff.

Still, an agreement for the state to appropriate the funds depends on broader negotiations about the scope of the PAGA law.

The two-decade-old state law allows the Labor Commissioner’s Office to outsource the role of suing employers over alleged labor violations to private attorneys, with a worker standing in as plaintiff on behalf of the state and their coworkers. Most suits are brought over wage theft claims, according to a UCLA Labor Center report.