The State of California significantly overhauled the Labor Code Private Attorneys General Act of 2004 (PAGA) with the recent enactment of Assembly Bill 2288 and Senate Bill 92. This LawFlash summarizes some of the key provisions of these lengthy and complex bills.

The legislation found bipartisan support from business and labor groups. With the enactment of these reforms, a ballot initiative to repeal PAGA was withdrawn from California’s November 2024 ballot. Designated as urgency legislation, the reforms apply to PAGA claims made on or after June 19, 2024, but not to claims based on PAGA notices submitted to the Labor and Workforce Development Agency (LWDA) before June 19, 2024.

As discussed below, the reforms include providing opportunities for employers to limit or avoid penalties both before and after receiving notice of alleged violations, limiting PAGA’s previously broad standing to assert violations the plaintiff never suffered, overturning several controversial court interpretations of PAGA, and placing caps on PAGA penalties in certain situations. The amendments are codified in various new or amended provisions of PAGA, Labor Code section 2698 et seq.

OPPORTUNITIES TO AVOID OR LIMIT PENALTIES

PAGA had previously provided for very limited opportunities to cure narrow categories of violations in order to avoid litigation and potential penalties. Employers generally viewed those cure provisions as ineffective. The PAGA reforms expand the types of violations that employers can cure.

To cure underpayment of wages, employees must be paid any unpaid wages going back three years from the date of the LWDA notice, any liquidated damages, interest at 7%, and “reasonable lodestar attorney's fees” and costs to be determined by the agency or the court. The amendments also provide specific methods to cure various violations of California wage statement requirements.

In addition to new cure provisions, the reforms also cap maximum penalties for employers who take "all reasonable steps" to come into compliance; if done before receiving a PAGA notice or a request for records, penalties are capped at 15%, and 30% if compliance steps are taken within 60 days after receipt of the notice. The reforms define “all reasonable steps” to include periodic payroll audits and taking action in response to the results of the audits; dissemination of lawful written policies; training supervisors on applicable Labor Code and wage order compliance; and taking appropriate corrective action with regard to supervisors. PAGA now expressly provides that the reasonableness of an employer’s compliance steps is to be evaluated “by the totality of the circumstances,” including the employer’s size and the nature of the alleged violation.

Effective July 1, 2024, all businesses that are sued under PAGA can engage in an early evaluation conference process, during which court proceedings “shall” be stayed upon request. The purpose of the conference shall include, but not be limited to, review by a judge or neutral of

• whether any of the alleged violations occurred and if so, whether the defendant has cured the alleged violations
• the strengths and weaknesses of the plaintiff's claims and the defendant's defenses
• whether plaintiff's claims, including any claim for penalties or injunctive relief, can be settled in whole or in part
• whether the parties should share other information that may facilitate early evaluation and resolution of the dispute

Required submissions for the early evaluation conference are confidential, and include

• the factual basis for each of the alleged violations
• the amount of penalties claimed for each violation if any, and the basis for that calculation
• the amount of attorney fees and costs incurred to date, if any, that are being claimed
• any demand for settlement of the case in its entirety
• the employer's proposed plan for curing any or all alleged violations, and the plaintiff’s basis for accepting (or not) the proposed plan.

In addition to the early evaluation conference, which is now available to all employers in California, effective October 1, 2024, small and medium sized businesses may participate in a further streamlined cure procedure. Businesses with less than 100 employees have 33 days from receipt of a notice of violation to submit to the LWDA a confidential proposal to cure one or more of the alleged violations. If the LWDA determines the proposed cure is sufficient, then a PAGA action cannot be brought subject to certain exceptions.

ADDRESSING CONTROVERSIAL COURT DECISIONS

The PAGA reforms address several controversial court decisions, including Huff v. Securitas Sec. Servs. USA Inc., 23 Cal. App. 5th 745 (2018) which held that a plaintiff had standing to pursue PAGA penalties for Labor Code violations they had not personally experienced, so long as the plaintiff was affected by at least one other Labor Code violation alleged in the complaint. The reforms now limit standing to a person who “personally suffered each of the violations alleged.”

One intent of this provision is to prevent PAGA lawsuits from being pursued as to a broad range of alleged violations that were never experienced by the named plaintiff. However, the reforms exclude any “non-profit legal aid organization” serving as counsel of record for an aggrieved employee that has also “served as counsel of record in civil actions under [PAGA] for at least five years prior to January 1, 2025.”

The reforms also codify that PAGA is subject to a one-year statute of limitations under Code of Civil Procedure Section 340, and that standing cannot be established based on time-barred violations, in response to the controversial holding in Johnson v. Maxim Healthcare Servs., Inc., 66 Cal. App. 5th 924 (2021).

In response to Estrada v. Royalty Carpet Mills Inc., 15 Cal. 5th 582 (2024), the reforms provide that the court may “limit the evidence to be presented at trial or otherwise limit the scope of any claim to ensure that the claim can be effectively tried.”

REMEDIES

The previous PAGA statutory language provided that recovered PAGA penalties are shared 25% to aggrieved employees and 75% to the state. The reforms now provide that 35% of any penalties are paid to aggrieved employees and 65% to the state. The reforms also expressly allow for injunctive relief as a remedy under PAGA.

Formerly called “subsequent violation” penalties, the reforms now state that $200 heightened penalties are only available if the employer has been found or determined within the last five years by the DLSE or a court to be in violation of the Labor Code provision at issue, or if the court determines that the employer's conduct giving rise to the violation was “malicious, fraudulent, or oppressive.”

The reforms also place some common-sense caps on PAGA penalties in certain situations. For example, because PAGA penalties are assessed on a per-pay period basis, employers who pay wages on a weekly basis could be subject to twice the penalties as employers who pay on a biweekly or semimonthly basis. The reforms reduce penalties by one-half for employers who pay weekly. Also, “isolated, nonrecurring” violations can be capped at $50 per aggrieved employee per pay period.

Certain technical wage statement violations are capped at $25 per aggrieved employee per pay period “if the employee could promptly and easily determine from the wage statement alone the accurate information specified by [Labor Code section 226(a)]” or if the employee was provided a wage statement and “would not be confused or misled about the correct identity of their employer.”

Finally, the reforms confirm that derivative/duplicative PAGA civil penalties cannot be recovered for violations of Labor Code provisions for timely payment of current or final wages that are “neither willful or intentional,” or for noncompliant wage statement violations that are “neither knowing or intentional.” Under controlling precedent, this will mean that, if the employer has a “good faith dispute” defense to the claimed violation, civil penalties cannot be recovered for a violation of Labor Code Sections, 201, 202, 203, 204, or 226.

TAKEAWAYS

Employers should review their wage and hour policies and consider “periodic payroll audits” to assess compliance with California law, as well as supervisor training, in order to take advantage of potential penalty reductions. If employers receive a PAGA notice asserting Labor Code violations, employers should promptly review the notice and assess with legal counsel the potential option to promptly take “all reasonable steps to prospectively be in compliance with all provisions identified in the notice,” including steps discussed above, in order to take advantage of expanded PAGA cure provisions and limitations on potential penalties.

Please join us for a webinar on July 30 in which we will discuss the key PAGA changes and practical guidance.

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