PAGA Reform: a Summary for California Employers

On July 1, 2024, Governor Newsom signed SB-92 and AB-2288 into law, providing substantial changes to California’s Private Attorneys General Act (“PAGA”). PAGA was passed in 2004 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. While PAGA was meant to increase enforcement of the Labor Code and protect aggrieved workers in California, in practice it has mostly benefitted plaintiffs’ attorneys by enabling frivolous “shakedown” lawsuits against California employers. As a result, a measure to repeal PAGA was intended for the November 2024 ballot, however the Governor’s office instead adopted certain changes to PAGA requirements and penalties in lieu of a potential PAGA repeal. These changes will apply only to PAGA cases filed on or after June 19, 2024, and they do not apply retroactively.

Standing, Statue of Limitations, and Injunctive Relief

Previously, the named plaintiff in a PAGA case could pursue penalties for any alleged Labor Code violation covered by PAGA, even if the plaintiff had only personally experienced a single violation. Now, the named plaintiff must have personally experienced all violations for which they seek recovery on a representative basis, and they must have personally suffered the alleged violations within a one-year statute of limitations period.

In addition, PAGA plaintiffs may now seek injunctive relief for the alleged violations instead of monetary penalties.

Share of Penalties

The share of penalties for aggrieved employees has been increased from 25% to 35%, and the share distributed to the LWDA has been decreased to 65% from 75%.

No Derivative Penalties

Under the prior law, plaintiffs could use a single Labor Code violation to pursue derivative penalties for other violations. For example, a plaintiff asserting a failure pay overtime claim could rely on that violation to seek additional penalties such as waiting time penalties for failure to pay wages at termination, and inaccurate wage statement penalties. Now, an employee who recovers a penalty for a single wage violation cannot collect additional or derivative penalties for the same underlying conduct.

Caps on Penalties

PAGA had previously imposed a default penalty of $100 per pay period for an initial Labor Code violation experienced by an aggrieved employee, and $200 per pay period for each subsequent violation. The reformed PAGA provides caps on certain penalties. Since the penalties are assessed on a “per pay period” basis, and the average pay period is presumed to be bi-weekly, employers who pay their employees on a weekly basis have their penalties reduced by 50% under the new law.

The penalty for a wage statement violation that does not result in actual injury to the employee is capped at $25 if the employee can easily determine from the statement the required information and the error does not cause the employee confusion.

If a violation occurs for less than 30 days or four consecutive pay periods, it is considered “isolated,” and the maximum penalty is $50. Conversely, employers who commit repeat offenses may have the penalty doubled to $200 per pay period if: 1) the employer has violated the same Labor Code provision at issue within the last five years, or 2) a court determines the employer’s conduct to be malicious, fraudulent or oppressive.

Cure Provisions

The new PAGA law also provides cure provisions for an additional reduction of penalties. Employers who take proactive steps to comply with the Labor Code provision at issue will have penalties capped at 15% if those steps are taken before receiving a PAGA notice. Penalties are capped at 30% if the employer takes those steps within 60 days after receiving a PAGA notice. Such “reasonable steps” may include conducting periodic payroll audits, disseminating lawful written policies, training supervisors on wage order compliance, or making a corrective action.

To “cure” alleged violations of the Labor Code, an employer must correct the violation, be in compliance with the underlying statute and make each aggrieved employee whole. Under the new law, an employee is “made whole” when they receive all unpaid wages owed dating back three years plus 7% interest, liquidated damages if required by the statute and reasonable lodestar attorneys’ fees and costs.

Early Evaluation and Resolution Options

Trial courts now have the power to determine the manageability of PAGA claims, limit the evidence to be presented, or otherwise limit the scope of any claim.

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.

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.

Recommendations for California Employers

This PAGA reform will provide much needed relief for employers who take proactive measures and respond diligently when receiving a PAGA notice. Employers are encouraged to regularly review their wage and hour policies, train supervisors and managers on such policies, and conduct periodic payroll audits for compliance with the Labor Code. When receiving a PAGA notice, employers should immediately notify their counsel and conduct a review to determine whether the alleged violations can be cured promptly to substantially reduce any potential penalties.