In a major development for employers who do business there, California has passed legislation to reform its Private Attorneys General Act as part of a deal that will lead to the withdrawal of a November 2024 ballot initiative sponsored by business groups to rescind the Act. The bills amending PAGA have been sent to Gov. Gavin Newsom (D) for signature, and he is expected to sign. Assuming Governor Newsom signs, the changes will take effect on October 1.

The reforms would benefit both employers and employees, but there are important and necessary changes that would address some of the most challenging aspects of PAGA litigation for employers. The amendments to PAGA come via two bills – AB 2288 and SB 92 – and would apply only to PAGA notices filed on or after June 19, 2024. The new reforms do not apply to lawsuits filed before June 19.

The expected revisions to PAGA are extensive and in some instances complicated, and much is unknown at this stage about how they will play out in the courts. For now, particularly given the newly and greatly expanded cure and compliance provisions, we recommend that employers review their policies, practices, and procedures, and consider auditing employee records. These actions, taken now, will help employers get the maximum benefit of the new provisions in the event of a PAGA lawsuit. Anticipatory compliance will also help to reduce the penalty exposure in PAGA litigation. In addition, the new provisions, if they become law, will have a short and early timeline for employers to cure alleged violations. We will provide some guidance and examples in the next few weeks.

Here is a summary of the most significant changes to PAGA in the legislation:

The amendments would restore a higher “standing” threshold for plaintiffs. Generally, “standing” is a legal concept meaning that, to be able to sue, a plaintiff must have been harmed or have a real risk of suffering harm. In recent years, California courts have weakened standing requirements for plaintiffs in PAGA actions. However, under the legislation, plaintiffs would be required to have personally suffered each of the violations alleged, and within the one-year statute of limitations. This would be a significant win for employers. Currently, courts are allowing plaintiffs in PAGA litigation to represent other employees based on alleged harms that the plaintiffs themselves have not experienced, which has greatly expanded the number and scope of claims that are brought against employers. Under the new legislation, employers would have stronger grounds for attacking the plaintiffs’ individual claims.

Manageability. In another win for employers, the amended PAGA would allow employers to ask trial courts to limit what a plaintiff can present at trial.

Litigating against PAGA plaintiffs has long been a challenge for employers who have been unable to use the kinds of arguments that can prevent wage and hour class actions from being tried collectively. Employers have tried, and some courts have allowed, employers to get PAGA lawsuits dismissed before trial on the ground that the lawsuits are not manageable. However, a recent California Supreme Court ruling has held that PAGA claims cannot be dismissed on this basis, but that trial courts can limit the evidence presented at trial or the scope of the claims. The amendments to PAGA would codify this holding. In other words, PAGA lawsuits would not be subject to dismissal based on “manageability,” but the courts would have the power limit the evidence or claims presented at trial.

Changes in penalties. The amendments would retain the existing civil penalty of $100/$200 per pay period. However, the amendments would add new provisions that would reduce these penalties in several key instances:

• Any penalty assessed against employers who pay weekly would be reduced by half.
• Employees would no longer be able to recover penalties for derivative wage statement and waiting time penalty claims.
• Wage statement penalties that do not cause harm or injury would be capped at $25.
• The higher $200 penalty would be available only where, within five years before an alleged violation, the California Labor & Workforce Development Agency or any court has issued a finding or determination to the employer that its policy or practice giving rise to the violation was unlawful. This higher penalty would also be available where an employer’s conduct is found to be “malicious, fraudulent or oppressive.”
• For isolated, non-recurring events that did not extend beyond 30 consecutive days or four consecutive pay periods, the civil penalty would be $50.
• Some changes would benefit plaintiffs. For example, PAGA plaintiffs are currently awarded 25 percent of the total penalties assessed (with the remainder going to the LWDA) and do not have the right to seek injunctive relief. The legislation would increase the plaintiffs’ share of penalties from 25 percent to 35 percent, and would allow plaintiffs to seek injunctive relief.

Significant revisions to cure provisions. PAGA currently limits the ability of employers to cure certain wage statement violations after receipt of a PAGA notice. The new bill would greatly expand the kinds of claims that can be cured and includes procedures that employers could pursue to reduce or even eliminate all penalties. There are questions as to how these requirements would be assessed and how they would play out in the courts, but they appear to give employers more options to address allegations early and proactively, although there are associated costs.

Labor Code claims that would be included in the cure provisions in the legislation relate to meal and rest break violations, non-payment of overtime and minimum wage, and expense reimbursement.

“Cure” is defined in the legislation as follows:

An employee who is owed wages is made whole when the employee has received an amount sufficient to recover any owed unpaid wages due under the underlying statutes specified in the notice dating back three years from the date of the written notice … plus 7 percent interest, any liquidated damages as required by statute, and reasonable lodestar attorney’s fees and costs to be determined by the agency or the court. In case of a dispute over the amount of unpaid wages due, nothing in this part prohibits an employer from curing the alleged violations by paying amounts sufficient to cover any unpaid wages that the agency or court determine could reasonably be owed to the aggrieved employees based on the violations alleged in notice.

Also taken into account is whether the employer takes “all reasonable steps to be prospectively in compliance.” The legislation would give employers three options: (1) cure and take reasonable steps to be in compliance, (2) cure only, or (3) take reasonable steps only. The penalties assessed would be based on the option chosen by the employer. Curing and taking all reasonable steps could potentially result in no penalties being assessed.

Early evaluation conferences. Another major change would provide employers with an opportunity to request an “early evaluation conference” before or on the date that a responsive pleading in a PAGA action is due. The request would stay the action while a “neutral evaluator” examines information from the parties and, in the case of the employer, a plan for a cure of the violations.

If the neutral evaluator and the plaintiff accept the employer’s plan, the employer would present evidence of the cure, which would effectively function as settlement of the action (or part of the action if other claims are still in dispute). If the neutral evaluator or plaintiff does not agree that the employer has cured the alleged violations, the employer would have the right to file a motion with the court requesting that the court approve the cure.

Employers with fewer than 100 employees would be able to request a hearing with the LWDA before suit is filed to discuss a cure proposal.