UPDATE: JULY 1, 2024

The proposed PAGA reform legislation passed the California Assembly and Senate and has been signed into law by Governor Newsom today.

What are the main takeaways from the proposed legislation?

• To bring a representative PAGA claim, an employee must have personally suffered each of the violations alleged.
• Employers can reduce civil penalties by taking reasonable steps to be in compliance with alleged violations.
• The proposed legislation limits double recovery for derivative penalties.
• It includes a new civil penalty of $200 for employers who act maliciously, fraudulently, or oppressively.
• Employees will recover 35 percent of recovered civil penalties (increased from 25 percent).
• The proposed legislation includes separate processes to cure for large and small employers.
• The law will apply to civil actions brought on or after June 19, 2024 (excluding civil actions with respect to which notice was filed before June 19, 2024).

JUNE 25, 2024
As reported last week, Governor Newsom, in partnership with legislative leadership and business and labor groups, announced an agreement to reform the Private Attorneys General Act, or PAGA. The text of the proposed legislation (namely, AB 2288 and SB 92) has been released, and it includes the most significant changes to PAGA since it went into effect in 2004. If the proposed legislation is passed and signed into law by June 27, proponents of a ballot initiative aimed at eliminating PAGA have agreed to withdraw the measure from the November 2024 ballot.

What changes are included in the PAGA reform legislation?

• Standing
  • PAGA plaintiffs can only bring claims for violations of the Labor Code on behalf of current or former employees “against whom a violation of the same provision was committed.” Stated differently, an aggrieved employee must have personally suffered each of the violations alleged.
• Reduction of Penalties
  • If prior to receiving a notice of violation, or prior to receiving a request for records from the aggrieved employee or the employee’s counsel, the employer has taken all reasonable steps to be in compliance with all provisions identified in the notice, the civil penalty that may be recovered shall not be more than 15 percent of the penalty sought.
  • If within 60 days after receiving a notice of violation, the employer has taken all reasonable steps to prospectively be in compliance with all provisions identified in the notice, the civil penalty that may be recovered shall not be more than 30 percent of the penalty sought.
  • An employer who (1) satisfies one of the foregoing and (2) cures a violation shall not be required to pay a civil penalty for that violation. Any other employer shall pay a civil penalty of no more than $15 per employee per pay period for any violation the employer cures. An employer cures a violation when it corrects the violation, is in compliance with the underlying statutes specified in the notice, and each aggrieved employee is made whole.
  • “All reasonable steps” may include any of the following: conducting periodic payroll audits and taking action in response to the results, disseminating lawful written policies (specific to the alleged violations if notice received), training supervisors on applicable Labor Code and wage order compliance, or taking appropriate corrective action with regard to supervisors. Importantly, the existence of a violation, despite the steps taken, is insufficient to establish that an employer failed to take “all reasonable steps.”
  • PAGA penalties historically have been $100 for an initial violation and $200 for each subsequent violation. The proposed legislation sets the penalty at $100 for each aggrieved employee per pay period with two major exceptions. First, if the alleged violation is one related to an unlawful wage statement, the only civil penalty applicable is $25 for each employee per pay period if the employee could promptly and easily determine from the wage statement the required information or the employee would not be confused or misled about the correct identity of their employer. Second, the civil penalty is $50 for each aggrieved employee per pay period if the alleged violation resulted from an isolated, non-recurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods.
  • The proposed legislation limits double recovery of derivative penalties. Specifically, an employee can no longer collect a civil penalty for (1) violations of Labor Code sections 201, 202, or 203, (2) a violation of Labor Code section 204 that is neither willful or intentional, or (3) a violation of Labor Code section 226 that is neither knowing or intentional nor a failure to provide a wage statement that is in addition to the civil penalty collected for the underlying unpaid wage violation.
  • Penalties recovered shall be reduced by one-half if the employees’ regular pay period is weekly rather than biweekly or semimonthly.
• New Penalty
  • The proposed legislation includes a new civil penalty of $200 if (1) within the five years preceding the violation, there was a finding or determination to the employer that its policy or practice giving rise to the violation was unlawful or (2) the employer’s conduct giving rise to the violation was malicious, fraudulent, or oppressive.
• Employees’ Increased Share of Recovered Penalties
  • Aggrieved employees will recover 35 percent of recovered civil penalties (increased from 25 percent).
• Availability of Injunctive Relief
  • The proposed legislation provides that an employee may be awarded injunctive relief in a civil action.
• Separate Processes to Cure for Large and Small Employers
  • An employer who employs at least 100 employees, upon being served with a summons and complaint (asserting a claim under subdivision (a) or (f) of Labor Code section 2699) may file a request for an early evaluation conference and a request for a stay of court proceedings. A request for an early evaluation by a defendant must include a statement regarding whether the defendant intends to cure any or all of the alleged violations, specify the alleged violations it will cure, and identify the allegations it disputes.
  • Upon the filing of a request for an early evaluation by a defendant and, if requested, a stay of proceedings, a court shall stay the proceedings and issue an order (absent good cause for denial) that (1) schedules a mandatory early evaluation conference as soon as possible but in no event later than 70 days after issuance of the order, (2) directs a defendant that has filed a statement that it intends to cure any or all alleged violations to submit confidentially to the neutral evaluator and serve on the plaintiff the employer’s proposed plan to cure those violations, (3) directs a defendant that is disputing any alleged violations to submit to the neutral evaluator and serve on plaintiff a confidential statement that includes the basis and evidence for disputing those alleged violations, and (4) directs the plaintiff to submit to the neutral evaluator and serve on defendant a confidential statement that includes specifics of the alleged violations (for example, amount of penalties claimed, attorney’s fees and costs incurred).
  • The conference shall include an evaluation of (1) whether any of the alleged violations occurred and, if so, whether the defendant cured the alleged violations, (2) the strengths and weaknesses of plaintiff’s claims and defendant’s defenses, (3) whether plaintiff’s claims can be settled in whole or in part, and (4) whether the parties should share other information that may facilitate early evaluation and resolution.
  • For small employers (those employing fewer than 100 employees), within 33 days of receipt of notice sent by an aggrieved employee, the employer may submit to the agency a confidential proposal to cure one or more of the alleged violations. If the cure is sufficient or if a conference is necessary to determine if a sufficient cure is possible, the agency may set a conference with the parties to determine whether the proposed cure is sufficient, what additional information may be necessary to evaluate the sufficiency of the cure, and the deadline for the employer to complete the cure.
• Limitations on Presentation at Trial
  • Courts may limit the evidence to be presented at trial or otherwise limit the scope of trial to ensure that the claim can be effectively tried.
• Application
  • The proposed legislation will apply to civil actions brought on or after June 19, 2024. But, it shall not apply to a civil action with respect to which the notice required by Labor Code section 2699.3 was filed before June 19, 2024.

As the deadline for measures to be withdrawn from the November ballot looms, it is anticipated that the California legislature will look to pass the proposed PAGA reform legislation by June 27. We will continue to monitor the proposed legislation and its impacts.