For years, California employers have struggled to deal with claims under the state’s Private Attorneys General Act (“PAGA”)(Labor Code §§ 2699, et seq.), known – without affection – in the early days as the “Sue Your Boss” law.  The law authorizes private citizens to essentially step into the state’s shoes and sue for violations of the California Labor Code.  On July 1, 2024, Governor Newsom signed legislation that significantly limits a private citizen’s ability to bring PAGA claims, expands the ability of the courts to manage PAGA claims, enhances the employer’s opportunity to remedy problems, and reduces the available PAGA penalties.  While possibly not perfect, the new legislation is a welcome improvement.

Interestingly, the new legislation was the result of negotiations over an initiative on the November 2024 ballot that would have all but repealed PAGA.  The ballot measure was withdrawn once the Governor signed the new legislation.

Before getting to the ‘good news’ details, one bit of bad news: the new law is not retroactive, it will apply only to lawsuits filed on or after June 19, 2024, or to claims based on PAGA notices to the Labor and Workforce Development Agency (“LWDA”) was filed on or after June 19, 2024.  In other words, existing PAGA lawsuits proceed under the old rules.  That said, in many instances a plaintiff will file a class action, and only later amend to add a PAGA claim after giving the appropriate notice to the LWDA.  Even if the original lawsuit were filed before June 19, 2024, logic suggests that an amendment to add PAGA claims should see those claims handled under the new statute if the PAGA notice was given after June 19, 2024.

The new statute requires that a plaintiff have “personally suffered” each Labor Code violation that is the subject of the PAGA claim.  This is a significant departure from the old law that allowed a PAGA plaintiff to seek to enforce the rights of others even if the PAGA plaintiff did not experience each of the alleged violations themselves.  The new statute also clarifies that all of the alleged wrongs must have been experienced within one year of the date that the PAGA plaintiff gives notice to the LWDA.

Courts dealing with PAGA claims under the prior version of the statute often struggled with managing claims that involved large numbers of alleged violations, large groups of allegedly affected employees, and even differing work environments.  For example, earlier this year, the California Supreme Court – in Estrada v. Royalty Carpet Mills – concluded that trial courts had very little inherent ability to dismiss PAGA claims that they deemed unmanageable.  The amended statute specifically empowers trial courts to impose limitations on PAGA claims in order to address manageability issues.

The new statute also expands employers’ ability to cure violations, even after a PAGA action has been filed.  In response to a PAGA complaint, an employer now has the option of having the case stayed while an early evaluation is conducted by a neutral evaluator.  The evaluation involves submission of confidential briefs by both sides.  The employer identifies which alleged violations it disputes, and how it proposes to cure those violations it does not dispute.  The employee is required to address the amount of claimed penalties, the factual bases for the alleged violations, and its reasons for not accepting any proposed cure.  If the neutral evaluator accepts the employer’s position, any eventual PAGA penalties are greatly reduced.

Under the amended statute, the amount of penalties that can be recovered is greatly reduced in certain important circumstances.  These reductions include the following:

1. Penalties for violations that are properly cured at the early evaluation are capped at $15 per affected employee per pay period.
2. For an employer who cured the violation but even before that took all reasonable steps to comply with the Labor Code, the penalty can be reduced to zero.
3. Wage statement penalties – often the most troublesome and significant – also are reduced in circumstances where despite the alleged violation the employee still was easily able to determine the information allegedly not included on the wage statement. In this circumstance, the penalty is capped at $25 per affected employee per pay period.
4. The new law reduces the wage statement penalties in half if the employee’s pay period is weekly rather than biweekly or semi-monthly. Under the old statute, PAGA penalties were assessed on a per pay period basis.  Therefore, an employer who utilized weekly payroll was subjected to double the amount of PAGA penalties compared to an employer paying bi-weekly by virtue of the increase in the number of pay periods.  The new law equalizes the penalties for employers who pay their employees on a weekly basis rather biweekly or semi-monthly.
5. For employers who can demonstrate that before being notified of an alleged PAGA violation they were taking all reasonable steps to comply with the Labor Code, PAGA penalties are capped at 15% of the statutory amount.
6. An employer who can demonstrate that within 60 days of receiving a PAGA notice they took all reasonable steps to comply with the Labor Code can have their PAGA penalties capped at 30% of the statutory amount.
7. The former $200.00 standard penalty for subsequent violations has been replaced with a $200.00 penalty that is available only when an employer’s conduct was malicious, fraudulent or oppressive, or an agency or court made a determination within the last five years that the particular conduct was unlawful.

The new PAGA law resolves many – but not all – of the concerns employers had with the prior law.  The new law does provide employers with new ways in which to avoid, or at least significantly limit, PAGA penalties, and so it is important that employers work with their employment counsel to make sure that they are taking full advantage of the new law.