On July 1, 2024, Governor Gavin Newsom signed two bills into law that significantly revamp the Private Attorneys General Act of 2004 (PAGA). These reforms follow a June 18 deal reached between California labor and business groups and Governor Newsom that will keep an initiative seeking to repeal PAGA off the November ballot. The revised statute ("New PAGA") brings a suite of changes that, among other things, will incentivize employers to take proactive efforts to remediate wage and hour violations before lawsuits are filed and cure any violations promptly after filing.

What is New PAGA?

PAGA is a California statute that allows private individuals to stand in the shoes of the state to bring representative actions on behalf of other "aggrieved employees" and recover penalties for wage and hour law violations suffered by all those other employees. Over the past decade, the number of PAGA claims brought against employers has exploded. Thousands of PAGA claims are filed each year. According to the Department of Industrial Relations, over 8,000 PAGA notices (precursors to lawsuits) were filed in 2023 alone.

With the reforms that now comprise New PAGA, business and labor advocacy groups and the legislature sought to strike a balance between lessening the blow to well-intentioned employers who slip up despite their best efforts to comply while still enabling employees to bring actions against employers who flout California's wage and hour laws.

To whom does New PAGA apply?

All employers who employ any workers in California.

When does New PAGA take effect?

Immediately after being signed by Governor Newsom on July 1, 2024.

Does New PAGA apply to existing lawsuits?

It only applies to claims made after June 19, 2024. Specifically, all claims based on notices to the Labor Workforce and Development Agency submitted on or after June 19, 2024, are subject to the reforms of New PAGA. Claims predating June 19 remain subject to pre-reform PAGA.

Does New PAGA change anything about how California employees must be paid?

No. New PAGA does not alter any underlying wage and hour rules (i.e., minimum wages, overtime, meal/rest breaks, wage statements, or payment timing rules). Instead, it changes the rules governing what penalties that can be sought for certain types of violations, who can bring claims on behalf of others to recover those penalties, and how employers can reduce or eliminate their liability for certain penalties.

Why should California employers care about New PAGA if they are not facing PAGA litigation?

New PAGA incentivizes proactive efforts to comply with wage and hour laws and prompt reactive efforts to cure violations that occur despite those efforts. In other words, employers can take action right now that can dramatically reduce their exposure to penalties down the road if and when an employee asserts a claim. A few notable changes include:

• Reducing potential penalties by up to 85% for employers who proactively take "all reasonable steps" to be in compliance with wage and hour laws before being alerted of any claim, and by up to 70% for employers who take all reasonable steps within 60 days after being notified of a claim. As for what qualifies as "all reasonable steps," New PAGA provides the following statutory guidance:

"all reasonable steps" may include, but are not limited to, any of the following: conducted periodic payroll audits and took action in response to the results of the audit, disseminated lawful written policies, trained supervisors on applicable Labor Code and wage order compliance, or took appropriate corrective action with regard to supervisors. Whether the employer's conduct was reasonable shall be evaluated by the totality of the circumstances and take into consideration the size and resources available to the employer, and the nature, severity and duration of the alleged violations. The existence of a violation, despite the steps taken, is insufficient to establish that an employer failed to take all reasonable steps.

• Reducing or eliminating penalties altogether for employers who promptly cure violations after being notified of them. Most violations can now be cured by making employees "whole." The specifics of how violations can be cured are set out in the statute and broadly entail the following: (1) compensating employees for any unpaid wages owed during the 3-year statute of limitations period; (2) paying interest on those owed wages (7% rate) and any liquidated damages required by the relevant statute; and (3) paying reasonable attorney's fees and costs, to be determined by the LWDA or the court. Inaccurate wage statements can be cured simply by providing corrected wage statements (or, if the only error is the employer's name, by simply providing a "summary" of the error, the corrected information, and the pay periods in which the error occurred).
• Limiting the types of violations an employee can recover for under New PAGA to only the categories of violations that the employee personally suffered. For example, this prevents employees who may have experienced only a minor inaccuracy on their wage statement from suing for myriad wage and hour violations allegedly experienced by hundreds or thousands of other employees but not to them.

What should California employers do now?

New PAGA directly rewards proactive action (to prevent or correct wage and hour violations before any claim) and prompt reactive action (to correct and "cure" violations after being notified of a claim). Those proactive preventative measure can be taken right now and can dramatically impact the amount of potential penalties faced later when an employee brings a PAGA claim alleging a violation.

In sum, it has never been more important to vet wage and hour policies and practices.