CALIFORNIA – On June 18, California Governor Gavin Newsom, alongside labor and business groups and legislative leaders, reached an agreement to reform the state’s Private Attorneys General Act (PAGA).
Here are the key aspects of the PAGA reform and its potential impact on California employers:
- On June 21, two bills were proposed: AB 2288 and SB 92, which amend Sections 2699 and 2699.3 of the Labor Code, respectively. If the legislation is approved and signed, the PAGA ballot initiative slated for November will be withdrawn. The amendments will apply, with some exceptions, to civil actions initiated from June 19, 2024.
- One of the most significant changes is that PAGA plaintiffs must have personally experienced all alleged labor code violations to have standing.
- A one-year time limit is established for the plaintiff to have suffered each violation. This change overturns the California Supreme Court’s decision in Huff v. Securitas Security USA Services, Inc., which allowed a representative plaintiff to file a PAGA lawsuit on behalf of other employees.
- The amendments give California courts the authority to limit the scope of claims and evidence presented at trial, ensuring more effective management. This provision reverses the California Supreme Court precedent in Estrada v. Royalty Carpet Mills, Inc., which restricted courts’ ability to dismiss PAGA claims on manageability grounds.
- The reform sets the penalty for violations per pay period at $100, with certain exceptions. Limits on fines for employers of 15% or 30% depending on the actions they take to comply with the labor code are also included.
- 15% Limit: For employers who have taken all reasonable steps to comply with the labor code before receiving a PAGA notice, the maximum penalty will be 15% of the penalties sought.
- 30% Limit: For employers who take all reasonable steps within 60 days of receiving a PAGA notice, the maximum penalty will be 30% of the penalties sought.
- The legislation outlines two scenarios for a $200 penalty per pay period:
- If a court or agency determined labor code violations within five years preceding the alleged violation.
- If a court finds that the employer acted maliciously, fraudulently, or oppressively.
- Pay statement violations are limited to $25 per pay period if they did not cause economic harm to the employee. Additionally, the penalty is limited to $50 per pay period if the violation resulted from an isolated and non-recurring event.
- The amendments eliminate penalties for derivative claims, clarifying that employees cannot collect penalties for alleged underpayment of wages at termination, limiting penalties to intentional or willful underpayment during employment.
- The reform equalizes potential penalties for employers who pay weekly compared to those who pay biweekly, halving penalties for weekly payments.
- The employee’s share of penalties will increase from 25% to 35%, while the Labor and Workforce Development Agency (LWDA) will receive 65%.
- The legislation allows for injunctive relief and expands the labor code violations that can be cured following notice of the alleged violations.
- Mechanisms are provided for large and small employers seeking early resolution, allowing for conciliation or neutral evaluation of allegations and the possibility of proposing a cure plan.
While these new updates to PAGA reform offer cautious optimism for employers, it remains to be seen how the courts will interpret the new law and whether it will effectively mitigate abuses and operational costs over the past 20 years.
In the meantime, it is crucial for employers to maintain strict oversight of their labor policies and procedures to ensure continuous compliance.
