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PAGA Reforms Provide Relief for Employers: Essential Updates for California Businesses

The Private Attorneys General Act (PAGA), enacted in 2004, enables California employees to collect penalties for Labor Code violations on behalf of the state. Over the past decade, employers have faced a rising number of PAGA lawsuits, leading to frustrations and calls for reform. To address these concerns, industry groups proposed an initiative to repeal PAGA and implement new Labor Code enforcement mechanisms, set for the November 2024 ballot. However, to avoid a "contentious ballot measure campaign," as Governor Newsom described it, labor and business groups reached an agreement on significant PAGA reforms (Read our previous article for more information: PAGA Reform: A Step Toward Fair Labor Law Enforcement).


Following this agreement, Assembly Bill 2288 (AB 2288) and Senate Bill 92 (SB 92) were introduced to the legislature on June 21. By June 27, both bills had passed, and on July 1, Governor Newsom signed the legislation into law. 


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Overview


The new PAGA reforms represent the most substantial changes to the Act since its inception, aiming to address employer concerns while maintaining robust worker protections. These reforms include stricter standing requirements for plaintiffs, revised penalty structures, expanded cure rights, and new early resolution options. By implementing these changes, the legislation seeks to balance the enforcement of labor laws with fairer treatment of compliant businesses. This article provides a detailed breakdown of the key elements of the reforms and their implications for employers.


For additional information regarding PAGA and to find out how this could impact your business, please contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.


Key Elements of the Legislative Changes


1. Stricter Standing Requirements

The reforms introduce stringent criteria for filing a PAGA claim:


  • Direct Impact: One of the most significant changes introduced by the PAGA reforms is the requirement that plaintiffs must have personally suffered each Labor Code violation they intend to pursue on behalf of other employees. An exception exists for those represented by nonprofit legal aid organizations with 501(c)(3) status. This marks a major shift from previous practice, where an employee could file a PAGA lawsuit based on any Labor Code violations within the company, regardless of whether they were personally affected by each violation. This change aims to prevent the misuse of PAGA for filing extensive lawsuits based on violations that did not directly impact the plaintiff.

  • Timeliness: Plaintiffs must have experienced the alleged violations within one year before filing the necessary administrative notice with the California Labor & Workforce Development Agency (LWDA).

  • These changes overrule previous court decisions, likely reducing the number and scope of PAGA lawsuits, which benefits California employers.


2. Manageability of PAGA Claims

Courts now have the authority to impose manageability requirements on PAGA trials. This limits the scope of claims and the evidence that can be presented, addressing concerns from a recent California Supreme Court decision that courts lacked this inherent authority.


3. Revised Penalty Structures

The new legislation introduces a structured approach to penalties, encouraging proactive compliance and limiting employer liability.


Penalty Caps:


  • Standard Penalty: The legislation sets a standard penalty of $100 per pay period for violations unless:

    • A court or the labor commissioner found within the last five years that the employer’s policy or practice was unlawful, or

    • The court determines that the employer’s conduct was malicious, fraudulent, or oppressive.

    • In these cases, the penalty increases to $200 per pay period.

  • 15 Percent Cap: Employers who demonstrate they have taken all reasonable steps to comply with the labor code before receiving a PAGA notice or request for personnel records will have their penalties capped at 15% of the penalties sought.

  • 30 Percent Cap: Employers who, within 60 days of receiving a PAGA notice, take all reasonable steps to comply with the noticed Labor Code violations will have their penalties capped at 30% of the penalties sought.


All Reasonable Steps Defined: 


Reasonable steps may include conducting audits and acting on the results, having lawful written policies, training supervisors on labor code compliance, and taking appropriate corrective action regarding supervisors. The reasonableness of these steps will be evaluated based on the totality of circumstances, including the employer’s size, resources, and the nature, severity, and duration of the alleged violations. The mere existence of a violation does not establish that an employer failed to take reasonable steps; this determination will be at the court’s discretion.


Penalty Reductions:


  • Subsequent, minor, or technical violations now incur reduced penalties unless deemed malicious, fraudulent, or oppressive.

  • Technical wage statement violations are capped at $25 per pay period without actual harm, and isolated errors are capped at $50.

  • Derivative claims will not result in multiple penalties, simplifying the penalty structure.


4. Expanded Cure Rights and Early Resolution Options

The reforms expand curable PAGA violations to include wage statement claims, meal and rest break claims, minimum wage claims, overtime claims, and expense reimbursement claims. Courts are instructed not to impose PAGA penalties if an employer has taken all reasonable steps to comply and has adequately cured the violation.


New pathways for early resolution of PAGA litigation are introduced:


  • Small Employers: Those with fewer than 100 employees can request a settlement conference through the LWDA.

  • Large Employers: Those with 100 or more employees can request a stay of litigation and neutral evaluation through the court.


Both pathways have specific timelines and requirements, and their effectiveness will depend on their usage and outcomes.


5. Relief for Weekly-Paid Employees

To address the disparity faced by employers who pay employees weekly, the reforms reduce PAGA penalties for weekly-paid employees by half, acknowledging that such employers previously faced higher penalties.


6. Injunctive Relief and Penalty Reallocation

PAGA plaintiffs can now seek injunctive relief alongside PAGA penalties. Additionally, the portion of penalties distributed to employees increases from 25% to 35%, with the remainder still allocated to the LWDA.


Implications for Employers


Employers in California should thoroughly understand the implications of these PAGA reforms for future cases and closely monitor related legal developments. Reviewing and updating wage and hour policies and practices to ensure compliance with the new PAGA framework is essential. Taking proactive measures such as conducting regular audits, training supervisors, and maintaining accurate records can significantly reduce potential liabilities under these reforms.


For additional information regarding PAGA and to find out how this could impact your business, please contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.


 
Richard

Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.


Email: richard.liu@consultils.com | Phone: 626-344-8949


*Disclaimer: This article does not constitute legal opinion and does not create any attorney-client relationship.

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