California Governor Gavin Newsom announced last week that an agreement to reform the Private Attorneys General Act of 2004 (PAGA) had been reached by legislative leadership, labor organizations, and business groups. Prompted by a June 27 deadline to withdraw a PAGA repeal initiative from the upcoming November ballot, the California Legislature acted quickly this week to enact Assembly Bill 2288 and Senate Bill 92 containing significant changes to PAGA’s penalty structure, standing requirements, cure provisions, and other features. With the passage of these bills, the repeal initiative will not be appearing on the ballot this fall. Here is an overview of the key changes to the 20-year-old law.
Changes to the Structure of PAGA Penalties and Other Relief
Under the previous PAGA penalty structure, employers faced civil penalties of $100 for each “aggrieved employee” per pay period for an “initial violation” and $200 for each “subsequent violation.” Together, AB 2288 and SB 92 enact several revisions to PAGA’s penalty provisions:
Caps on Penalties When Employer Shows Reasonable Compliance. New provisions impose a 15% cap on penalties sought when an employer is able to show that, before receiving a notice of violation or a request for employee records under certain Labor Code sections, the employer has “taken all reasonable steps to be in compliance.” Similarly, the amendments include a 30% cap on penalties sought when an employer is able to show that, within 60 days after receiving a PAGA notice, the employer has “taken all reasonable steps” to prospectively be in compliance. For these purposes, “reasonable steps” include, without limitation, conducting payroll audits, disseminating lawful written policies, providing compliance training to supervisors, and taking corrective action when violations occur. Courts may further reduce these penalty amounts, or disregard these caps, “if, based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary and oppressive, or confiscatory.”
$200 Penalty Redefined. PAGA no longer references “initial” or “subsequent” violations for Labor Code provisions that do not provide for a civil penalty and instead applies a $100 penalty for each “aggrieved employee” per pay period, except in defined circumstances. The bill enacts a $200 per-pay-period penalty for each “aggrieved employee” if either (1) an agency or court issues a finding within five years preceding the alleged violation that the employer’s challenged policy or practice was unlawful, or (2) the court determines that the employer’s conduct was malicious, fraudulent, or oppressive.
Penalties for Wage Statement Violations. For wage statement violations under Labor Code section 226 that “the employee could promptly and easily determine from the wage statement alone the accurate information,” the civil penalty assessed will be capped at $25 per pay period for each “aggrieved employee.”
Limited Penalties for Derivative Violations of Labor Code Sections 201, 202, 203, 204, and 226. PAGA penalties can no longer be assessed for derivative violations of Labor Code sections 201, 202, and 203. For PAGA penalties to be assessed for derivative violations of Labor Code section 204, the violation must be willful and intentional. And for PAGA penalties to be assessed for derivative violations of Labor Code section 226, the violations must be knowing and intentional or be a failure to provide a wage statement altogether.
$50 Penalty for Isolated Violations. When an employer is able to show that a violation is isolated and nonrecurring, a reduced $50 civil penalty will apply for each “aggrieved employee” per pay period.
Penalties for Cured Violations. Under the new law, an employer that is able to show that it has taken the required “reasonable steps” and cured a violation shall not be required to pay a civil penalty for an underlying violation. Additionally, an employer that cures a wage statement violation under Labor Code section 226(a) shall not be required to pay a civil penalty for that violation. Any other employer will be required to pay a civil penalty capped at $15 per employee per pay period for the applicable statute of limitations for any violations the employer cures.
Penalty Reduced by One-Half for Weekly Pay Periods. To address the inequities inherent in assessing penalties by pay periods regardless of frequency, the new law requires any penalties awarded to be reduced by half if an employee’s regular pay period is weekly rather than biweekly or semimonthly.
Employees to Receive 35% of Penalties. The distribution of recovered penalties has been revised from its current 25/75 split between “aggrieved employees” and the California Labor and Workforce Development Agency (LWDA), the agency that administers PAGA, to increase employee recovery to 35% and reduce the LWDA’s recovery to 65%.
Injunctive Relief Allowed. The revisions to PAGA permit “aggrieved employees” to seek injunctive relief under the statute, in addition to any civil penalties and attorneys’ fees and costs they may recover.
Court Discretion in Assessing Penalties and Awarding Injunctive Relief. The revisions to PAGA make clear that a court remains authorized to exercise its discretion in assessing civil penalties and awarding injunctive relief.
Standing
PAGA’s definition of an “aggrieved employee” has been revised to require that the employee “personally suffer each of the violations alleged.” Under the previous requirements, PAGA allowed a plaintiff to recover for Labor Code violations suffered by other employees that they did not personally suffer, so long as the plaintiff could show they suffered at least one Labor Code violation. The revisions significantly change these standing requirements by requiring a PAGA plaintiff to personally experience all the alleged violations pursued in the action, rolling back the holding of Huff v. Securitas (2018) 23 Cal.App.5th 745. The new law does exempt from this new standing requirement certain actions brought by nonprofit legal aid organizations which have served as counsel of record in PAGA actions for five years.
One-Year Statute of Limitations
The revisions to PAGA limit recovery of civil penalties to those Labor Code violations that occurred within the one-year statute of limitations prescribed under Code of Civil Procedure section 340. This undoes the holding of Johnson v. Maxim Healthcare Services, Inc. (2021) 66 Cal.App.5th 924.
Cure Provisions
The reformed statute contains various revisions to the cure provisions and sets forth separate processes for small and large employers.
Under the revised law, employers with fewer than 100 employees during the period covered by the PAGA notice will be allowed to submit a confidential proposal to LWDA to cure the alleged violations. If deemed necessary, the LWDA will have the ability to set up a conference with the parties. The employer will be provided time to complete the cure, and the employee will be given an opportunity to respond. These proceedings will be deemed confidential.
For employers with at least 100 employees during the period covered by the PAGA notice, the employer will be able to request an early evaluation conference, which will include a statement regarding whether the employer intends to cure any or all of the alleged violations, and a request for a stay of court proceedings. While the proceedings are stayed, the parties will work with a neutral evaluator assigned by the court through a multistep process designed to help resolve the dispute.
An employer may only use the notice and cure provisions once in any 12-month period for violations of the same provisions set forth in the PAGA notice.
Courts’ Ability To Manage PAGA Claims
The new law expressly provides superior courts with discretion to manage PAGA claims, including the discretion to limit the evidence to be presented at trial or “otherwise limit the scope of any claim filed pursuant to this part to ensure that the claim can be effectively tried.”
Effective Dates of PAGA Reforms
These reforms to PAGA shall apply to civil actions brought on or after June 19, 2024. They will not apply to matters in which notice was filed with the LWDA before June 19, 2024.
Source: David Wright Tremaine LLP
June 28, 2024
