Yesterday, California Governor Gavin Newsom announced that labor and business groups concluded their ongoing negotiations and reached an agreement to reform California’s Private Attorneys General Act (PAGA). The agreement is not yet in writing. Bill language must be in print by June 24 and the Legislature must approve the bill by June 27. If that happens—which seems nearly certain—the PAGA repeal Initiative set to go to the voters will be removed from the November 2024 ballot.

Many pundits are touting the deal as one that will limit frivolous litigation and excessive penalties against employers that actively take steps to comply with the Labor Code. More cautious optimism is warranted. While aspects of the reform package will should prevent the most egregious cases of PAGA abuse, other aspects essentially codify the status quo for the many plaintiffs’ attorneys who have already amassed personal fortunes through excessive PAGA litigation.

Although the bill has not been published, CDF anticipates that it will include the following changes to existing law:

1. The PAGA plaintiff must have personally experienced each Labor Code violation for which they seek to recover civil penalties.
   • This amendment would be a significant win for California employers. It would override the California Court of Appeal’s 2018 decision in Huff v. Securitas §. Servs., which allowed created a “file first, investigate later” style of PAGA litigation. In Huff, the appellate court held that PAGA plaintiffs who experienced any one Labor Code violation may seek civil penalties for any and all violations that they did not experience but that may have been committed against other employees. If the bill passes, the scope of PAGA lawsuits will be limited only to the type of violations the named plaintiff can prove he or she personally suffered.
2. The PAGA lawsuit must be based on and limited to alleged Labor Code violations that occurred within the applicable one-year statute of limitations period.
   • This amendment would be another win for California employers, as it would provide common sense clarification to the law and remove the uncertainty created by the California Court of Appeal’s 2021 decision in Johnson v. Maxim Healthcare Services. In Johnson, the appellate court applied the aforementioned Huff case, and held the PAGA plaintiff had standing to maintain claims based on a violation she technically experienced outside of the applicable one year limitations period. However, the plaintiff in Johnson was a current employee and the alleged violation was based on an allegedly unlawful non-compete agreement she was forced to sign at the outset of her employment. The continuing violation doctrine would have supported the plaintiff’s standing as she was still bound by the violation during her employment within the applicable limitations period. But the appellate court’s decision was not clear or limited to those facts. This amendment would simply clarify that distant wage and hour violations will not, by themselves, give a plaintiff standing to maintain a PAGA claim.
3. Courts will have the authority to limit both the scope of claims and evidence presented at trial.
   • This change is ostensibly a response to the California Supreme Court’s decision in Estrada v. Royalty Carpet Mills, Inc., which held that trial courts lack the inherent authority to dismiss PAGA claims based on concerns over manageability. Something is better than nothing, but the strength of this change will very much depend on how it is drafted. The amendment will offer little help if drafted in a manner that simply gives trial courts full discretion to restrict the scope of particular claims in a PAGA action as needed to fairly and efficiently resolve a PAGA claim at trial. That is the status quo. If the amendment is drafted in a manner that allows employers to affirmatively raise the issue of unmanageable claims, it will be another win for employers. In that case, employers could seek to limit the scope of a PAGA action by establishing that if the allegedly aggrieved employees actually suffered the violations, proving so would require highly individualized evidence as to each of them.
4. PAGA penalties will differ based on the employer’s conduct, capping penalties for employers who proactively take steps to comply with the Labor Code before receiving a notice (e.g., 15% of the maximum) and those who proactively take steps to comply after receiving a notice (e.g., 30% of the maximum). There may also be reduced penalties for certain types of non-systemic violations, intermittent violations, violations that do not cause economic harm, and/or similar types of violations. And there may be limitations or prohibitions on “stacking” penalties for derivative violations.
   • These changes would codify the “market rate” plaintiffs’ attorneys currently seek when settling weak, if not meritless, PAGA claims. It may embolden them further and increase the cost of resolving relatively weak PAGA settlements. However, if trial courts tasked with assessing penalties exercise their discretion to significantly reduce a civil penalty award that is based on the new “capped” penalties, these changes could prove to be very beneficial for employers. Unfortunately, it will take a number of years to find out whether that comes to fruition.
5. Employers, and smaller employers in particular, will have new rights to cure more alleged violations and an opportunity to resolve PAGA actions earlier.
   • It is unclear how these changes would help most employers faced with PAGA litigation. Plaintiff’s attorneys are already eager to attend earlier mediation.

Employers with pending or anticipated PAGA actions are not likely to find any relief from these changes, as it is unlikely that they will apply to pending PAGA lawsuits. The new law, if passed, is expected to only apply to PAGA cases based on notice letters submitted to the LWDA on or after June 15 or thereabouts.