On June 17, labor and business groups reached an agreement with California Governor Newsom to reform California’s Private Attorneys General Act (PAGA). A summary of the deal was announced the following day.  The proposed amendments—Assembly Bill 2288 and Senate Bill 92—were formally introduced last Friday evening, June 21. The Legislature must approve the bills by June 27. If that happens—which seems nearly certain—the PAGA repeal Initiative set to go to the voters in November 2024 will be removed from the ballot.

The proposed changes to PAGA are as advertised—they amount to significant PAGA reform and contain some long-awaited relief for California employers. The reforms are likely to materially limit the number of frivolous and overly broad PAGA lawsuits that are filed. The reforms also will provide some protection for employers that actively take steps to comply with the Labor Code and cure any violations they become aware of. 

Former CDF Labor Law attorney, Jennifer Barrera, who is now the President and CEO of the California Chamber of Commerce, the leading business organization in these negotiations, offered the following observations:  “This legislative package reflects the most significant reform to PAGA that employers in California have seen since the law was enacted over 20 years ago. This legislation is intended to reduce the abusive litigation employers have endured under PAGA, while still providing an opportunity for employees to efficiently resolve legitimate disputes.”

Below is a summary of the most impactful changes proposed by AB 2288 and SB 92:

• PAGA plaintiffs represented by private law firms can only pursue civil penalties based on alleged Labor Code violations they personally experienced. This more strict standing requirement should prevent private plaintiff attorneys from taking a “file first, investigate later” approach to PAGA litigation. Private plaintiff attorneys will no longer be able to file PAGA lawsuits alleging any number of potential Labor Code violations based solely on their purported belief that their client experienced one of the violations. Interestingly, this requirement will not apply to PAGA plaintiffs represented by most non-profit legal aid organizations and similar legal services organizations. Those PAGA plaintiffs could still pursue civil penalties based on alleged violations they did not experience themselves.
• PAGA claims must be predicated on alleged violations that occur within the one-year statute of limitations period. This would provide common sense clarification to the law. Ostensibly, this amendment is a response to PAGA plaintiffs’ recent arguments that they have standing even if they only suffered a Labor Code violation outside of the applicable one-year statute of limitations.
• Courts will have the authority to limit both the scope of claims and evidence presented at trial. The amendments explicitly enforce the courts’ power to determine manageability over a PAGA claim to ensure it can be tried fairly and effectively.
• Employers will be incentivized to take active steps toward ensuring Labor Code compliance. The amendments would provide qualified limits on civil penalty awards against employers who actively seek to prevent Labor Code violations. An employer that demonstrates it “has taken all reasonable steps to be in compliance” before receiving the plaintiff’s request for employment records or PAGA notice might have the maximum civil penalty award capped at 15% of what would otherwise be the maximum potential award. An employer that demonstrates it took “all reasonable steps to be in compliance” with the alleged Labor Code violations in a PAGA notice within 60 days after the employer received the notice might have the maximum civil penalty award capped at 30% of what would otherwise be the maximum potential award. The 30% cap would only apply if (1) the employer did not, within the prior five years, receive findings or a determination that its policy or practice giving rise to the alleged violations were unlawful, and (2) the conduct giving rise to the violation was not malicious, fraudulent, or oppressive. The amendments qualify these limits by giving trial courts the discretion to award a civil penalty that is greater than the 15% or 30% cap if the court determines that a lesser penalty would be unjust or arbitrary. Exactly where that standard lies will likely be decided by the courts, and the subject of plaintiff attorneys’ arguments to support their outrageous settlement demands. 
• Reduction of civil penalties for certain wage statement violations and for certain isolated errors. The amendment would limit the civil penalty for innocuous wage statement violations to $25 per violation and would make clear that the $250/$1,000 civil penalty established by Labor Code 226.3 do not apply to allegedly deficient wage statements. The amendments would also create a $50 civil penalty for violations that occurred for no more than 30 consecutive days or no more than four consecutive weekly pay periods, whichever is less.
• Elimination of “stacking” civil penalties based on certain derivative violations. The amendment would preclude any civil penalties for alleged violations of Labor Code sections 201-204, and 226, which are predicated on - or purely derivative of - a separate Labor Code violation. By way of example, PAGA plaintiffs would not be able to claim that a failure to pay a rest break premium under Labor Code section 226.7 also creates civil penalty liability for the resulting violations of Labor Code section 204 (for failure to pay the premium when all wages for that pay period were due), section 226 (for failure to include the premium on the applicable wage statement), section 201 or 202 (for failure to pay the premium when all wages were due at the end of employment), and section 203 (for failure to pay a waiting time penalty resulting from the late payment of the break premium). The amendments will prevent the stacking of civil penalties in this manner.
• Employers will be able to cure more alleged Labor Code violations to prevent a civil penalty. The amendment will create new cure procedures and allow employers to cure new types of alleged violations. Alleged failures to pay wages, break premiums, and expense reimbursements would be curable violations. However, to “cure” the violation, the employer must “make whole” the employee who is owed wages by paying them (1) an amount sufficient to recover any owed unpaid wages due under the Labor Code provisions specified in the PAGA notice dating back three years from the date of the notice, (2) pay 7 percent interest on the unpaid wages, (3) pay any liquidated damages required by statute, and (4) pay reasonable lodestar attorney’s fees and costs to be determined by the agency or the court. The amendment would establish a more collaborative cure procedure for companies with less than 100 employees in the year prior to the PAGA notice. Those companies may avail themselves to the cure procedures by first submitting a notice to the LWDA with a confidential proposal to cure, and then working with the agency to ensure the violations have been cured.
• Employers would have a right to an automatic stay of the case and early neutral evaluation of the claims, which may result in a prompt resolution. The proposed early neutral evaluation procedures are complex and are somewhat different for employers with less than 100 employees than for those with 100 or more employees. Generally, though, all employers will have a right to request a stay and early neutral evaluation. Employers may exercise this right prior to or simultaneous with the filing of its responsive pleading or other initial appearance in the lawsuit that includes the PAGA claim. Employers with fewer than 100 employees during the applicable period may also initiate a settlement conference before the lawsuit is filed. It is unclear how these procedures may impact an employer’s right to enforce an arbitration agreement, i.e., whether invoking the right to an early evaluation may constitute a waiver of the right to enforce the arbitration agreement. We anticipate that the concern may be alleviated by revising arbitration agreements to address these early evaluation procedures.  
• Employers who pay on a weekly basis will have their potential civil penalty liability cut in half. Some employers still pay employees on a weekly basis, which benefits workers. The amendments would allow those employers to be treated as though they paid on a bi-weekly basis. This civil penalty reduction will apply whenever “the employees’ regular pay period is weekly rather than biweekly or semimonthly,” even if the law requires that the employer pay on a weekly basis.

Unfortunately, the new law, if adopted as introduced, will only apply to PAGA lawsuits that are predicated on a PAGA notice letter submitted to the LWDA and employer on or after June 19, 2024. Nonetheless, employers with pending PAGA lawsuits should consult their litigation counsel about how the amendments can be used to support their defenses and resolution efforts in those actions.

To prepare for the new law, California employers should immediately consult with PAGA litigation counsel to evaluate and strengthen (1) Labor Code compliance efforts and (2) arbitration agreements.