July 3, 2024 – Various labor and business groups, including the California Chamber of Commerce and California Governor Gavin Newsom, agreed in late June to certain reforms to the California Private Attorney General Act (“PAGA”).  The reforms were put into proposed legislation and almost unanimously passed the California legislature last week.  The bills were approved by the Governor on July 1, 2024.  This rush for reform was, in part, an effort to avoid a ballot measure in November 2024, led by the Fix PAGA Coalition, to essentially overturn PAGA in its entirety.   Although the reforms are not akin to a full repeal of PAGA, they will offer employers certain relief.  More on this below.

PAGA: Controversial, Confusing, and Costly

PAGA was originally enacted in 2004, allowing employees to sue employers for California Labor Code violations (e.g. health/safety violations, wage and hour claims, etc.).  Employees could bring suit on behalf of themselves as well as other employees, even where the named plaintiff did not personally suffer from all the claims alleged.  In particular, PAGA provided for steep penalties with little to no reductions, exemptions, or limitations (e.g., under California Labor Code section 2699 as is, employers can be subjected to a default civil penalty of $100 for each affected employee per pay period for an initial violation and $200 for each subsequent violation).  25% of any PAGA penalties are paid to the “aggrieved” employees and 75% to the Labor Workforce Development Agency (“LWDA”).  Since its enactment, PAGA has drastically increased litigation costs for employers and led to many frivolous lawsuits.  Those issues, combined with a dearth of clear standards and limited agency oversight by the LWDA, have put California employers in an untenable position.

Proposed Reforms

Assembly Bill 2288 and Senate Bill 92, contain the PAGA reforms resulting from drawn-out discussions between the Governor’s administration, labor, and business groups.  These reforms generally will apply to proceedings initiated on or after June 19, 2024.

Below is a summary of some of the key reforms:

• Employee-Plaintiff’s Standing: Under the pre-reform PAGA and precedent set forth in Huff v. Securitas Security USA Services, Inc., employee-plaintiffs could seek penalties for violations affecting other employees without being affected themselves, provided that the employee-plaintiffs proved a single Labor Code violation.  That is, one employee-plaintiff who proved one Labor Code violation could effectively trigger a complete audit of wage and hour practices by alleging other potential violations that did not affect or impact the employee-plaintiff in any way.  The PAGA reforms signed into law this week put an end to that practice by instead requiring employee-plaintiffs to prove that they experienced all the Labor Code violations they seek to pursue on behalf of other employees.
• Caps on Penalties: The prior PAGA law provided penalties of $100 (and in some cases $200) per aggrieved employee per pay period, which could add up quickly and resulted in a proliferation of frivolous lawsuits where plaintiffs and their counsel sought nothing more than quick settlements.  Now, the reforms cap penalties at:
  • 15% of the penalties sought for employers who demonstrate that it “has taken all reasonable steps to be in compliance” with the law at issue before receipt of a PAGA notice or request for personnel records;
  • 30% of the penalties sought for employers who take reasonable steps after receipt of a PAGA notice; or
  • $25 per aggrieved employee for wage statement violations that do not cause injury, or $50 per aggrieved employee where violations occur for less than 30 days or 4 consecutive pay periods (i.e., isolated errors).

Reasonable steps may include periodic payroll audits, action taken in response to those audit results, dissemination of compliant written policies, training of supervisors, and taking corrective action with respect to supervisors, if needed.  Importantly, the application of the caps and determination of reasonable steps are left to the court and depend on the facts and circumstances.

There are some other penalty limitations and even further guidance on when the $200 penalty for “subsequent violations” is available.

• Employees Receive 35% of Penalties Awarded: Prior to this reform, aggrieved employees only received 25% of any penalty award. The PAGA reforms increase that share to 35%, meaning the LWDA will only receive 65% of the penalties rather than 75%.
• Cure Provisions: The old PAGA scheme only allowed certain wage statement violations to be cured or fixed by employers after receiving a PAGA notice. Now, all wage statement, meal/rest period premiums, overtime, and expense reimbursement violations can be cured.  Large employers—those with 100 or more employees for the relevant period—may request an early neutral evaluation with the court, during which the court must stay all discovery and responsive pleading deadlines.  The neutral will review the large employer’s proposed fixes, monitor their compliance, and consider the employer’s efforts in limiting penalties.  Even if the plaintiffs or neutral do not agree that a cure is sufficient, the large employer will still have the ability to file a motion with the court for cure approval.  Effective October 1, 2024, small employers will have expanded options to cure alleged violations once they receive a PAGA notice and can even preempt the filing of a PAGA action altogether by curing the violations alleged in the notice.
• Injunctive or Declaratory Relief: The only remedies available under the prior PAGA law were civil penalties and attorney’s fees, but the new reforms add injunctive and declaratory relief as potential remedies.  Notably, such relief is not mandatory, so plaintiffs could still seek only penalties.

Although not in these particular reforms, the Governor’s office is also set to consider a later bill expanding the California Department of Industrial Relations (“DIR”) so that California itself can handle a larger share of enforcement actions rather than plaintiffs’ attorneys.

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We are continuing to monitor and review these PAGA reforms.   If you have questions about PAGA litigation generally or the reforms, please contact your Kullman attorney.