On June 18, 2024, California Governor Gavin Newsom, Senate President pro Tempore Mike McGuire and Assembly Speaker Robert Rivas announced a tentative deal to reform a number of aspects of California’s Private Attorneys General Act (PAGA). While legislation is yet to be introduced, the publicly announced key components of PAGA reform include an increase in employees’ share of PAGA penalties, caps on penalties for employers who take steps to comply with the Labor Code or fix potential issues after receiving notice of a PAGA claim, and requiring the representative plaintiff to experience every alleged PAGA violation to have standing. This reform, if enacted, is likely to curb, but not eliminate PAGA litigation for California employers going forward.
As currently written, PAGA permits a current or former employee to bring litigation against an employer to recover penalties on behalf of “aggrieved employees”, as well as recover attorney’s fees and costs. PAGA penalties may reach up to $100, $200 or more per pay period per aggrieved employee. The statute of limitations for a PAGA claim is one year, and PAGA claims may be asserted either as part of a larger wage and hour class action or as a standalone “PAGA-only” lawsuit. While PAGA claims might appear to carry lower exposure based on the shorter statute of limitations (1 year as opposed to 3-4 years in a typical wage and hour class action), PAGA-only claims differ in a number of important ways from class actions. First, a PAGA claim is not subject to class certification. Second, California law allows for broad discovery of employee information from the outset of a PAGA case. Third, technical violations that might otherwise be de minimis in a wage and hour class action are subject to the statutory penalties of $100 or $200 per pay period, per employee.
In light of this, PAGA has been a significant driver of wage and hour litigation in California, and as a result of the recent exponential increase in PAGA litigation in California, a reform measure was placed on the November 2024 ballot by a coalition of non-profits, social justice advocates, family farmers, health care providers, and businesses.
After months of discussions with labor advocates and the coalition, California’s political leaders agreed on the outlines of a PAGA reform deal to be considered by the California Legislature. The reforms, if passed by the California Legislature and signed by Governor Newsome before June 27, 2024 (the deadline for measures to be withdrawn from the November 2024 ballot), would result in removal of the PAGA reform measure from California’s November ballot.
The core elements of the reform package are to increase the employee share of any recovery, increase penalties for malicious employer conduct, cap penalties for employers who make efforts to comply with the Labor Code, permit employers to cure more alleged Labor Code violations to make employees whole and avoid litigation, and require a representative plaintiff to experience all alleged Labor Code violations to have standing to pursue PAGA litigation. Each of these core elements is discussed further below:
Employee Share of Penalty
Currently, any PAGA penalties awarded, after attorney’s fees and costs are subtracted, are apportioned 75% to the California Labor Workforce Development Agency, and the remaining 25% is distributed amongst the aggrieved employees. The PAGA reform increases the aggrieved employee’s share of the penalties to 35%.
Increased Penalties for Malicious Employer Conduct
The PAGA reform deal will create a new $200 per pay period penalty for instances where an employer acted maliciously, fraudulently, or oppressively. It is presently unclear what constitutes malicious, fraudulent, or oppressive conduct, though this language is similar to the standard for punitive damages applicable to non-wage and hour employment claims.
Caps on Employer Liability
The PAGA reform deal proposes caps on PAGA penalties for employers who attempt to comply with the Labor Code before receiving a PAGA notice and those employers who take steps to fix policies and practices after receiving a PAGA notice.
Those employers who proactively take steps to comply with the Labor Code before receiving a PAGA notice would only be subject to a maximum of 15% of the applicable PAGA penalty for a given claim.
Those employers who take steps to fix policies and practices after receiving a PAGA notice would only be subject to a maximum of 30% of the applicable PAGA penalty for a given claim.
While it has not been announced what employer conduct qualifies as proactive compliance efforts or what steps to fix policies or practices are necessary to qualify for the applicable caps, it is clear regular compliance efforts and swift responses to PAGA letters will become only more critical going forward.
Other Penalty Reductions
The reform deal also reduces the maximum penalty by an unknown amount in instances where the alleged violation was brief, as well as for alleged technical wage statement violations that did not cause confusion or economic harm to the employee, such as misspelling of company names.
The reform deal also provides a mechanism for equalizing penalties for those employers who pay their employees on a weekly basis, as opposed to bi-weekly. PAGA penalties are currently assessed on a per pay period basis, making employers who utilize weekly payroll potentially subject to double the amount of PAGA penalties as an employer paying bi-weekly.
Employer Opportunity to Avoid Litigation
The reform deal provides several opportunities for employers to avoid litigation, either by curing the alleged violations or engaging in an early resolution process through the courts.
PAGA currently provides an employer the opportunity to avoid liability if it properly cures certain technical violations of the obligation to provide accurate wage statements.
The PAGA reform deal proposes an increased, though currently unspecified, number of Labor Code provisions that may be cured by an employer upon notice of the potential violations.
The reform deal also provides increased cure opportunities for small employers, via an unspecified process through the Labor and Workforce Development Agency.
Lastly, the reform deal provides for early resolution opportunities for large employers in court, presumably through a court-mandated early settlement process.
Standing
Presently, under Kim v. Reins International California, Inc.(2020) 9 Cal.5th 73, a representative plaintiff has standing to bring a PAGA lawsuit so long as the plaintiff was employed by the alleged violator and personally suffered at any point in time at least one Labor Code violation on which the PAGA lawsuit was based. The reform deal proposes that a representative plaintiff must have actually experienced all of the alleged PAGA violations within the one-year statute of limitations for PAGA claims to have standing to pursue the litigation.
Manageability
Presently, under the California Supreme Court’s recent decision in Estrada v. Royalty Carpet Mills, Inc., trial courts lack inherent authority to strike PAGA claims on manageability grounds, even if those claims are complex or time intensive, unlike the authority that trial courts have to bar class action claims. The PAGA reform deal would be a move toward overturning Estrada and codifying a trial court’s ability to limit the scope of claims and the evidence presented at trial for reasons of manageability.
Increased State Enforcement
The PAGA reform deal would also commit the Newsom administration to seeking expedited hiring to fill vacancies at the California Department of Industrial Relations (DIR) to improve and expedite enforcement of employee labor claims by the DIR, instead of by private attorneys general.
Conclusion
The PAGA reform deal, assuming it is passed in the publicly announced form by the Legislature and signed by the Governor before the June 27, 2024 deadline to withdraw the PAGA ballot measure, is likely to curb, but not eliminate PAGA litigation for California employers going forward. The reformed PAGA will, if passed as announced, make it even more critical for employers to proactively monitor their California wage and hour compliance, as well as act swiftly to evaluate their options to fix or cure the alleged violations when they receive notice of a potential PAGA claim.
