PAGA Reform Brings Good News to Employers

In a significant move that will put California employers at ease, on July 1, 2024, California Governor Gavin Newsom signed two bills – Senate Bill 92 and Assembly Bill 2288 – to amend the Labor Code Private Attorneys General Act (PAGA). These amendments seek to reform PAGA by introducing measures to reduce frivolous lawsuits and ensure that the law serves its intended purpose of protecting workers’ rights. These amendments are in effect as of June 19, 2024. For actions that are currently pending or based on Labor and Workforce Development Agency notices (“PAGA notice”) sent prior to June 19, 2024, the prior PAGA rules apply.

We highlight the important changes from SB 92 and AB 2288 below.

1. Standing. Employees can no longer bring a lawsuit against an employer for wage and hour violations they did not suffer. Previously, PAGA plaintiffs could pursue PAGA claims on behalf of themselves and other current or former employees, even if they did not personally experience each and every violation alleged in the claim. Now, a PAGA plaintiff will have to establish they personally suffered the specific violation for which they are bringing a claim. The goal is to limit the scope of lawsuits to those where the plaintiff has been directly impacted by the alleged violation.
2. Statute of Limitations. A PAGA plaintiff must have personally experienced the Labor Code violation within the one-year period prior to the PAGA notice.
3. Manageability of PAGA claims. The courts now have explicit power to determine manageability over PAGA claims and may limit the evidence to be presented at trial or otherwise limit the scope of any claim filed to ensure the claim can be effectively tried. Previously, trial courts did not have the inherent authority to strike a PAGA claim on manageability grounds.
4. Opportunity to Cure. The new amendments introduce changes designed to make penalties more proportionate to the violations committed and to ensure the penalties serve as a meaningful deterrent without unduly burdening employers for minor infractions. Employers now have an opportunity to cure violations of Labor Code Section 226 (wage statements), Section 226.7 (failure to pay meal/rest period premiums), Section 510 (overtime), and Section 2802 (expense reimbursements) and employers who diligently cure the violations will be subject to reduced penalties, including:
   1. 1. Pre-PAGA Notice: If an employer demonstrates it has taken all “reasonable steps” to be in compliance with the law prior to receiving a PAGA notice or a request for personnel records, the available penalties are capped at 15% of the penalties sought. “Reasonable steps” may include, but are not limited to, conducting periodic payroll audits and taking action in response to the results of the audit, disseminating lawful written policies, training supervisors on applicable Labor Code and wage order compliance, and/or taking appropriate corrective action with regard to supervisors.
      2. Post-PAGA Notice: If within 60 days after receiving the PAGA notice, the employer takes all reasonable steps to cure the violations identified in the notice, the civil penalty that may be recovered in a lawsuit will be no more than 30% of the penalty sought.
      3. No “Stacking” Certain Violations: A big headache previously for employers was the penalties for derivative Labor Code violations. Now, courts can reduce “stacked” penalties for violations arising from the same underlying violation. For example, an employee who recovers civil penalties for unpaid overtime cannot also collect civil penalties for related, derivative claims for failure to pay wages at termination (unless willful or intentional), or failure to provide compliant wage statements (unless willful or intentional).
      4. Relief for Employers with Weekly Pay Periods: PAGA imposes penalties on a pay period basis, which increases exposure for employers who pay their employees on a weekly basis. The amendments reduce any PAGA penalties recoverable against employers who pay on a weekly basis by one-half. This places employers with weekly pay periods on equal footing as employers who have biweekly pay periods.
      5. Cap on Penalties for Wage Statement Violations: Previously, PAGA penalties for wage statement violations were $100 per aggrieved employee per pay period. Now, it is $25 per aggrieved employee per pay period if the employee could determine from the wage statement alone the information allegedly unlawfully missing from the wage statement.
      6. Reduced Penalties for Isolated Errors: Where violations occur for less than 30 days, or four consecutive pay periods, the PAGA penalty is capped at $50 per aggrieved employee per pay period.
      7. Reduced Penalties for Subsequent Violations: The amendments explicitly provide the circumstances in which a $200 penalty for a “subsequent violation” could be awarded. Specifically, PAGA’s penalty of $200 per aggrieved employee per pay period applies only where either (a) within five years preceding the alleged violation, a court or the LWDA issued a determination that the employer violated the Labor Code provision in dispute; or (b) the employer’s conduct that caused the violation was malicious, fraudulent, or oppressive.
      8. Employees Receive a Greater Portion of Penalties Awarded: Previously, any award under PAGA was distributed 75% to theLWDA and 25% to the aggrieved employees. PAGA penalties will now be distributed 65% to the LWDA and 35% to the aggrieved employees.
5. Method of Cure.
   1. 1. Large Employers. Employers with more than 100 employees may file a request for a stay and Early Neutral Evaluation with the court, which requires the court to stay all discovery and responsive pleading deadlines. A neutral will be assigned who will then review the employer’s plan for curing violations, monitor compliance with the plan for a cure, and consider the employer’s efforts in limiting potential penalties. An employer may also file a motion for the court to approve a cure, even if the plaintiffs or neutral do not agree a cure has been sufficient.
      2. Small Employers. Employers with less than 100 employees may present a plan to cure the violations to the LWDA within 33 days of receiving a PAGA notice letter identifying the alleged violations. The LWDA will then arrange a settlement conference with the employee and employer in an attempt to reach an early resolution of the matter. If the LWDA rejects the proposal without a conference, or chooses not to have a conference, however, the employee may proceed with filing a civil action.  
      3. Court Direction to Place Limitations on the Scope of PAGA claims. The new amendments give the courts increased authority to limit the scope of PAGA claims. Courts now have the discretion to narrow the scope of PAGA claims, meaning they can limit the types of violations or the number of employees covered by a claim. For example, if a PAGA lawsuit includes multiple alleged violations, the court can choose to focus only on the most significant or well-substantiated ones. Courts may also consolidate or coordinate different PAGA actions that involve overlapping violations against the same employer.

What does this mean for employers?

Audit! Audit! Audit!

Employers should conduct regular audits of their employee’s wage and hour records to ensure compliance with California’s many Labor Codes. Should employers find a violation, they should immediately cure the violation to reduce any penalties that may arise should an employee pursue a PAGA action. Employers should also review and revise their wage and hour policies as necessary to ensure compliance with California’s Labor Code laws and provide training to supervisors.

The attorneys at Lagasse, Branch, Bell & Kinkead, LLP are available to assist you in addressing any questions you may have about these new amendments and how they may impact your workplace.