PAGA Reform: Key Takeaways for California Employers
On July 1, 2024 Governor Newsom signed SB-92 and AB-2288 into law, which instituted sweeping reforms to California’s Private Attorneys General Act (“PAGA”). PAGA was passed 20 years ago to provide a private mechanism for employees to pursue claims on behalf of the Labor and Workforce Development Agency (“LWDA”) against employers for alleged Labor Code violations. PAGA was meant to improve compensation for and benefit workers in California, but in practice has largely benefitted plaintiffs’ attorneys, which was why reforms were necessary.
Summary of Key Reforms
Changes to Standing Requirements
- Previously, the named plaintiff in PAGA litigation could pursue penalties for any alleged Labor Code violation covered by PAGA, even if that plaintiff had only personally experienced a single violation. For example, if a named plaintiff had only experienced a rest break violation, the plaintiff could still pursue penalties for meal break, failure to pay overtime, and wage statement violations on a representative basis. Now, the named plaintiff must have personally experienced all violations for which he seeks recovery on a representative basis, bringing PAGA in-line with class action principles. However, non-profit legal aid associations that have been involved in PAGA litigation for at least 5 years are exempt from this requirement.
Changes to PAGA Penalties
PAGA had imposed a default penalty of $100 for each aggrieved employee (i.e. an employee who experienced a Labor Code violation) per pay period for an initial violation and $200 for each subsequent violation. The new law retains the $100 default penalty with certain exceptions, and replaces the default $200 penalty.
- No Derivative Penalties: Under prior law, plaintiffs could use a single violation to “stack” penalties. Now an employee who recovers a penalty for a wage violation (such as failure to pay overtime) cannot collect additional or derivative penalties for the same underlying conduct, such as waiting time penalties for failure to pay wages at termination or inaccurate wage statements.
- Cap on Penalties for Isolated Errors: Now, if a violation occurs for less than 30 days or four consecutive pay periods, it is considered “isolated,” and the maximum penalty is $50.
- Cap on Penalties for Wage Statement Violations: Previously, employers could be exposed to huge penalties for wage statement violations that did not cause actual injury to employees. Now the penalty is capped at $25 for failure to include required information on a wage statement if the employee can promptly and easily determine from the statement the required information. The penalty is also $25, if the wage statement incorrectly names the employer, but the employee would not be confused or misled about the correct identity of the employer.
- Lower Penalties for Employers Who Pay Weekly: Because penalties were per pay period, employers who paid on a weekly basis versus biweekly faced higher potential penalties. The new law reduces penalties for employers who pay weekly by 50% to avoid this arbitrary result.
- Enhanced Penalties for Repeat Offenders: The new law changes when the penalty can be doubled. Now the default penalty can only be doubled to $200 in two circumstances: 1) for repeat offenders, defined as employers whom any agency or court has found within the last five years to have violated the same Labor Code provision at issue; or 2) employers, whose conduct a court has determined is malicious, fraudulent, or oppressive (this is the same standard required for an award of punitive damages in California).
Cure Provisions
While PAGA previously contained cure provisions, they did not provide meaningful opportunities for employers to prevent PAGA claims from proceeding to court. The new law both reduces penalties for employers who cure and provides opportunities for early resolution.
- Potential Reduction of Penalties by 85%: If an employer can show that it took “all reasonable steps” to maintain compliance with the Labor Code prior to receiving a PAGA notice, then penalties could be capped at 15%. It remains to be seen how courts will interpret “all reasonable steps,” but some examples may include, periodic payroll audits, taking action in response to those audits, and supervisor training.
- Potential Reduction in Penalties by 70%: If an employer takes “all reasonable steps” to remedy any alleged violation within 60 days after being served with a PAGA notice, penalties can be capped at 30%. Again, courts have discretion to determine when an employer has taken “all reasonable steps.” Also, if employers want to cure after receiving a PAGA notice, they will need to act quickly.
- Early Neutral Evaluation for Large Employers: Employers with more than 100 employees can request an early neutral evaluation conference, which will stay all court proceedings. The employer can submit evidence that it sought to comply with the Labor Code and also submit a plan to cure. If the neutral or plaintiff rejects the plan, the employer can seek court approval of the plan and dismissal of plaintiff’s claims.
- Settlement Conference at LWDA for Small Employers: Employers with less than 100 employees can submit a cure plan to the LWDA within 33 days after receiving a PAGA notice. The LWDA can then determine whether or not to conduct a settlement conference between the parties.
Manageability
- PAGA claims have been easier to pursue than class actions because they have had none of the same procedural safeguards. Now, in addition to the standing requirement discussed above, trial courts have inherent power to determine the manageability of PAGA claims and limit the evidence to be presented or otherwise limit the scope of any claim.
Statute of Limitations
- After the decision in Johnson v. Maxim Healthcare Services, Inc., 66 Cal. App. 5th 924 (2021), in which the Fourth District Court of Appeal held that an employee could still pursue representative PAGA claims even though her individual claims were time-barred, plaintiffs’ attorneys have argued that there is effectively no statute of limitations for PAGA claims. AB2288 clarifies that the statute of limitations of one year applies to the personal Labor Code violations the named plaintiff experienced.
Injunctive Relief
- Injunctive relief is also now available under the new law.
Unfortunately, these mainly employer-friendly reforms only apply to PAGA cases that were filed on or after June 19, 2024. This means that the new law does not apply to most pending cases. The reforms also do not affect the non-arbitrability of representative PAGA claims, which we discussed in this previous post. While this new law may signal relief for California employers, PAGA litigation will continue, and it remains to be seen how courts will interpret this new legislation.
