Common Sense Advice And Uncommon Legal Results

PAGA Reform is Here! Here’s What Employers Need to Know

by | Jul 5, 2024 | blog, Employment Law, PAGA |

On July 1, 2024, Governor Newsom signed Assembly Bill 2288 and Senate Bill 92 into law, providing the most substantive changes to the Private Attorney General Act of 2004 (“PAGA”) in its 20-year history. AB 2288 amends Labor Code section 2699, while SB 92 amends Labor Code section 2699.5 and amends, repeals and adds Labor Code section 2699.3. These bills eliminate, narrow, and revamp many of the provisions that employees have long relied upon to collect Labor Code penalties for wage and hour violations.

The PAGA amendments are not retroactive and apply only to PAGA actions (or PAGA notices) initiated on or after June 19, 2024. Labor Code section 2699.3, as amended by SB 92, will remain in effect until October 1, 2024. After October 1, 2024, a similar but new iteration of Labor Code section 2699.3 will come into effect. Key changes are outlined below.

Narrowed Standing to Bring PAGA Claims

Previously, PAGA authorized an “aggrieved employee” to bring a civil action, on behalf of that employee and other current or former employees, to enforce any violation of the Labor Code, regardless of whether the plaintiff was personally affected by the violation. For example, if an employee experienced only an overtime violation, but not a meal period violation, the employee could nevertheless pursue penalties against the employer for meal period violations, and any other violations of the Labor Code for that matter. AB 2288 now requires an “aggrieved employee” to have “personally suffered each of the Labor Code violations alleged” to recover on a representative basis. However, the old standard to establish standing will still apply to PAGA actions brought by a nonprofit legal aid organization that has been involved in civil actions under PAGA for at least five years prior to January 1, 2025.

The new bills also clarify that the aggrieved employees must have personally experienced the Labor Code violation within the one-year PAGA statute of limitations. Formerly, plaintiffs were able to add claims outside the one-year period.

Expanded Provisions for Employers to Cure Violations

Previously, PAGA allowed employers to “cure” Labor Code violations in very limited situations (only certain wage statement violations could be cured). SB 92 expands the cure provisions under Labor Code Sections 226 (wage statement violations), 226.7 (failure to pay meal and rest period premiums), 510 (overtime), and 2802 (expense reimbursements). This is significant as these types of violations are commonly alleged in PAGA actions.

For PAGA notices filed on or after October 1, 2024, the steps required for curing violations vary depending upon the size of the employer:

Small Employers: Small employers (under 100 employees during the PAGA Period) may submit to the Labor and Workforce Development Agency (“LWDA”) a proposal to cure within 33 days of receipt of a PAGA notice. The LWDA will then schedule a settlement conference like those held by the Labor Commissioner for individual wage claims.

Large Employers: Conversely, large employers (those that employed 100 or more employees during the PAGA Period) served with a civil complaint may request an early evaluation conference and request a stay of discovery and responsive pleading proceedings. The court must issue an order that schedules a mandatory early evaluation conference within 70 days. At the conference, the neutral evaluator will review the employer’s plan for curing violations, monitor compliance with the plan for a cure, and consider the employer’s efforts in limiting potential penalties. The employer may file a motion to request the court to approve the cure and submit evidence showing correction of the alleged violations, if the plaintiffs or neutral do not find the cure sufficient.

For PAGA notices filed between June 19, 2024 and October 1, 2024, an employer may cure any of the violations outlined above within 33 calendar days of the postmark date of the notice. If the employer gives written notice of the cure within that period by certified mail to the aggrieved employee or representative and by online filing with the LWDA, including a description of actions taken, then no PAGA action may commence.

PAGA Penalties Restructured

PAGA previously subjected employers to a civil penalty of $100 for each aggrieved employee per pay period for an initial violation, and $200 for each subsequent violation. These penalties added up quickly. AB 2288 restructures PAGA penalties to be less onerous on employers, depending on circumstances:

Penalties Capped for Employers Taking Steps Towards Compliance

15% Cap Prior to PAGA Notice: AB 2288 places a cap of 15% on PAGA penalties for employers that show that they took all reasonable steps to comply with the law before receiving a PAGA notice of demand for personnel records.

30% Cap After Receipt of PAGA Notice: Employers who establish that following receipt of a PAGA notice they took all reasonable steps to come into compliance with all provisions identified in the notice, PAGA penalties are capped at 30%.

The following are considered “reasonable steps:” conducting periodic payroll audits and taking action in response to the audit results, disseminating lawful written policies, training supervisors on applicable Labor Code and wage order compliance, and taking appropriate corrective action with regard to supervisors.

Ultimately, the court has discretion as to whether the employer’s conduct was reasonable based on the totality of the circumstances and taking into consideration the size and resources available to the employer, and the nature, severity and duration of the alleged violations.

If an employer successfully cures a Labor Code violation by taking “all reasonable steps,” then no penalties may be awarded for such violation. Similarly for wage statement violations, if an employer cures them, no penalties can be assessed. Otherwise, if an employer has not taken “all reasonable steps” but has otherwise cured the violations, the penalties will be limited to $15 per pay period.

Reduced Penalties of $50 for Isolated, Nonrecurring Violations

AB 2288 reduces civil penalties from $100 to $50 for each aggrieved employee per pay period if the alleged violation resulted from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods.

$200 Penalty for Subsequent Violations Limited

The more onerous $200 penalty for subsequent violations may be imposed only in situations where: 1) the LWDA or court, within the past five years, issued a finding or determination that the employer had a policy or practice that caused the unlawful violation; or 2) if the court determines that the employer’s conduct causing the violation was “malicious, fraudulent, or oppressive.”

$25 Cap for Wage Statement Violations that Do Not Cause Injury

For wage statement violations that do not cause harm to the plaintiff, the PAGA penalty is capped at $25 per employee per pay period.

No More Derivative Penalties

Part of the reason PAGA exposure was so costly was because plaintiffs were allowed to stack penalties. For example, an aggrieved employee could receive PAGA penalties not only for the underlying violation (say, underpaid overtime under Labor Code section 512), but also for derivative claims including failure to pay all wages (the underpaid overtime) at time of separation (Labor Code 203) and failure to provide accurate wage statement (because if the employee was underpaid, then the wage statement was inaccurate (Labor Code 226).

AB 2288 makes clear that an aggrieved employee shall not collect a civil penalty for any derivative violation of Sections 201, 202, 203, a violation of Section 204 that is neither willful or intentional, or a violation of Section 226 that is neither knowing or intentional nor a failure to provide a wage statement, in addition to the civil penalty for the underlying wage violation.

Employees Receive a Larger Share of PAGA Penalties

Formerly, 75% of PAGA penalties went to the LWDA and 25% went to the aggrieved employees. AB 2288 increases the employees’ share to 35%.

Elimination of Weekly Pay Period Basis

PAGA calculates penalties on a pay period basis. Thus, employers with weekly pay periods were exposed to twice as many penalties as employers with biweekly pay periods. AB 2288 levels the playing field, codifying that penalties recovered from employers operating on a weekly pay period will be reduced by half.

Court Discretion Regarding Assessment of Civil Penalty Amount

California courts have long exercised discretion over the reduction of penalties to avoid awards that would be unjust, arbitrary and oppressive, or confiscatory. AB 2288 formally codifies a court’s discretion to adjust the amount of penalties awarded based on the facts and circumstances of each particular case.

Injunctive Relief

Finally, AB 2288 and SB 92 add injunctive relief as an available remedy for plaintiffs.

Courts May Now Adress Issues of Manageability

AB 2288 authorizes courts to address issues of manageability over PAGA claims, including limiting the scope of claims or evidence to be presented at trial. Formerly, the California Supreme Court held that trial courts do not have inherent authority to strike a PAGA claim on manageability grounds.

Looking Forward

While PAGA reform is good news for California employers, a PAGA claim can still greatly impact a business. Prudent employers should take all reasonable steps to comply with wage and hour laws prior to receipt of a PAGA notice by conducting periodic payroll audits and taking necessary corrective action, disseminating lawful written policies, training supervisors on applicable Labor Code and wage order compliance, and taking appropriate corrective action if supervisors fail to enforce wage and hour workplace policies and practices. Employers who receive a PAGA notice, should act swiftly to cure any violations and come into compliance.

Duggan McHugh attorneys are available to assist employers with wage and hour compliance, as well as to help employers faced with a PAGA notice to quickly cure any curable violations and strategically defend them in any PAGA litigation.