Any employer that has experienced a Labor Code Private Attorneys General Act of 2004 (“PAGA”) lawsuit knows PAGA can be a nightmare.  PAGA deputizes employees to sue employers for violations of California's Labor Code and recover civil penalties, which are assessed on a per-employee, per-pay period basis and can be astronomical.

An effort to reform PAGA was headed toward a ballot measure this November, but a deal was announced to head off the ballot measure in exchange for legislative reform.  The Governor signed two PAGA reform bills this week that may have a significant impact on PAGA lawsuits moving forward.  The bills are AB 2288 and SB 92, both of which took effect immediately and apply to PAGA lawsuits and notices initiated on or after June 19, 2024.

Here is a summary of the most important changes to PAGA as a result of these two bills.

• Plaintiff Standing. As with all lawsuits, plaintiffs must have standing to file claims.  PAGA plaintiffs now have a heightened bar to reach.
  • Plaintiffs must personally experience the alleged Labor Code violations for which they seek civil penalties. Previously, California courts permitted plaintiffs to recover civil penalties for violations experienced by other employees even if the plaintiffs did not personally experience such violations.  This has the potential to reduce the scope of PAGA claims plaintiffs pursue up front and to further reduce such claims if it determined plaintiffs did not personally experience violations they initially pursue.
  • Plaintiffs must personally experience the alleged Labor Code violations within one year of filing the PAGA action. Previously, California courts permitted plaintiffs to recover civil penalties for violations they experienced at any time in the past.
• Opportunity to Cure. Employers have the opportunity to cure alleged violations.  While this opportunity previously existed, the opportunity has expanded.
  • Effect of Cure. Employers that swiftly cure alleged violations potentially can avoid civil penalties altogether.  This remains unchanged.
  • Common Violations Curable. Nearly all PAGA actions allege basic wage and hour violations – minimum wage, overtime, meal periods, rest periods, wage statements, and expense reimbursements.  Previously, these alleged violations were not curable, which rendered the cure process effectively meaningless.  Now, all of these violations are curable.
  • Small Employers. Employers with under 100 employees during the PAGA period (i.e., "small employers") have an opportunity to cure alleged violations through a settlement conference process with the Labor and Workforce Development Agency.
  • Large Employers. Employers with 100 or more employees during the PAGA period (i.e., "large employers") have an opportunity to cure alleged violations and stay litigation through an early neutral evaluation process with a neutral evaluator.
  • Poison Pill? The new bills define "cure" as, among other things, making all employees whole going back three years, paying seven percent interest going back three years, paying all liquidated damages, and paying plaintiffs' attorneys' fees and costs.  Defining "cure" this way may be a poison pill, but we'll see how this plays out as the new law is implemented.
• The assessment of civil penalties is now more complex.  Previously, employers were subject to a civil penalty of $100 per employee per pay period for initial violations and $200 per employee per pay period for subsequent violations.
  • Pay Periods. PAGA standardizes exposure for employers that use weekly pay periods.  PAGA imposes civil penalties on per-pay period basis, which meant employers with weekly payroll were effectively exposed to twice as many civil penalties as those that used biweekly payroll and approximately twice as many as those that used semimonthly payroll.  This arbitrarily punished employers that pay employees weekly, which of course employees prefer.  PAGA now eliminates this unfairness by reducing penalties by 50 percent for employers with weekly payroll.
  • 15% Cap. For employers that take all reasonable steps to comply with the Labor Code before receiving a PAGA notice or an employee request for their employment records, the civil penalties can be capped at 15 percent of the penalties that otherwise would be assessed.  The new PAGA legislation defines "reasonable steps," which requires employers to demonstrate proactive diligence to comply with the Labor Code.  The new legislation does not provide an exhaustive list of what constitutes "all reasonable steps," but it includes periodic payroll audits, correcting non-compliance discovered during audits, disseminating policies to employees, training supervisors on wage and hour compliance, and taking corrective action against supervisors who do not comply.  No such cap previously existed.
  • 30% Cap. For employers that take all reasonable steps to comply with the Labor Code after receiving a PAGA notice, the civil penalties can be capped at 30 percent of the penalties that otherwise would be assessed.  The new PAGA legislation defines "reasonable steps," which includes the same actions as above and requires employers to demonstrate swift diligence to comply with the Labor Code after receiving a PAGA notice.  No such cap previously existed.
  • $50 Cap. When an employer's violation lasts for less than 30 days or four consecutive pay periods, the penalties are capped at $50.  No such cap previously existed.
  • Wage Statements. For wage statement violations that do not cause injury, the civil penalty is capped at $25.  No such cap previously existed.  Previously, employees often claimed the penalty rate was $1,000.
  • Clarification of $200 Penalty Rate. The higher $200 penalty rate applies when (1) a court or agency has determined within the last five years that the employer had an unlawful policy or practice that caused a Labor Code violation, or (2) a court determines an employer's unlawful policy or practice was malicious, fraudulent, or oppressive.
  • Derivative Penalties. Civil penalties for derivative violations have been eliminated.  For example, if an employer fails to pay an employee for one minute of overtime, that results in three derivative violations: (1) underpayment of wages during the pay period; (2) an inaccurate wage statement; and (3) failure to pay all wages owed by the last date of employment.  Previously, an employer was exposed to civil penalties for the underlying overtime violation as well as the three derivative violations.  Now, an employer is exposed to civil penalties only for the underlying overtime violation, effectively reducing the exposure to civil penalties by 75 percent.
  • Court Discretion to Reduce (. . . and Increase) Penalties. Courts have discretion to reduce civil penalties below the rates specified in PAGA.  While courts and litigators operated under this presumption, it is now codified.  However, this came at a cost: courts now have authority to increase civil penalties.
  • Penalties Split. Employees will receive 35 percent of the civil penalties (the State of California receives 65 percent).  Previously, the State of California received 75 percent and employees received only 25 percent.  Although PAGA asserts the purpose of PAGA is to "protect workers," California's decision to retain 65 percent (previously 75 percent) of the penalties sure seems like it's meant to protect California, but that's a discussion for another day.
• Manageability.  Courts are permitted to limit PAGA claims if they are unmanageable.  Previously the California Supreme Court prohibited courts from doing so.  Courts remain required to review and approve PAGA settlements.
• Evidence.  The new bills render inadmissible many of the communications regarding efforts to resolve PAGA claims within the early neutral evaluation conference process.
• Cal/OSHA Violations. There are now additional requirements plaintiffs must satisfy under PAGA when seeking civil penalties for health and safety violations under the Labor Code.

There are still many unanswered questions about how these amendments to PAGA will be implemented.  It’s clear, however, that compliant policies, compliant practices, constant diligence in enforcing compliance, and correcting any noncompliance are essential to preventing PAGA lawsuits and limiting their financial impact. If your company receives a PAGA notice, it’s now more important than ever to work with experienced counsel immediately to protect your company and limit the damage.