After years of attempts by employer groups to repeal or make common sense changes to PAGA (Private Attorneys General Act) laws, on July 1, Governor Newsom signed Assembly Bill 2288 and Senate Bill 92 which reflect significant reforms to the Labor Code Private Attorneys General Act of 2004.  The new changes to PAGA give employers a lifeline when it comes to wage and hour exposure by implementing new changes to the law that give employers the ability to avoid and reduce potential exposure under PAGA.  The following sets forth the key changes in the law.

1. What is PAGA (Private Attorneys General Act) and why is it important?

Over the past two decades employers have faced PAGA claims with substantial potential exposure (often six figures), with little to no recourse or ability to reduce or avoid liability. Under PAGA, an employee can bring a suit on behalf of all other employees to recover penalties ($100 for the first violation and $200 per violation thereafter) for each violation of a labor code statute. This includes violations for inaccurate paystubs, failure to provide meal and rest breaks, failure to pay final wages upon separation, and failure to reimburse business expenses, just to name a few. 

2. How do the new laws affect who can bring a PAGA claim?

Pursuant to the new changes to the PAGA laws, Plaintiffs must now show they personally experienced the Labor Code violation(s) they are seeking to recover on behalf of other employees.  Previously this was not required. 

This change will aid in limiting the scope of PAGA actions. Additionally, employers can argue that the plaintiff’s claims should be adjudicated first in order to determine the appropriate scope of the claims for the representative group. It also makes the arbitrations of individual PAGA claims more important, as the results of arbitration will define the scope of the potential representative action once the representative PAGA action proceeds in Superior Court.

3. How do the changes impact the manageability of PAGA claims?

AB 2288 explicitly enforces the courts’ power to determine manageability over PAGA claims, and provides that Courts can now limit evidence presented at trial or otherwise limit the claim scope to ensure effective trials under AB 2288.

4. What are the new penalty structures under the revised PAGA laws?

AB 2288 introduces changes to the structure of penalties available under PAGA. Prior to the new changes, employers were potentially subject to a civil penalty of $100 for each aggrieved employee per pay period for an initial violation, and $200 for each subsequent violation. Below is the new penalty structure.

• 15% Cap on Penalties For Employers Who Take Reasonable Steps For Compliance”: If an employer demonstrates that it “has taken all reasonable steps to be in compliance” with the law prior to receipt of a PAGA notice (delivered by the employee’s attorney) or a request for personnel records by an employee, then the available penalties are capped at 15% of the penalties sought.  Examples of such reasonable steps include, but are explicitly not limited to, conducting periodic payroll audits, and taking action in response to the results of the audit, disseminating lawful written policies, training supervisors on applicable Labor Code and wage order compliance, or taking appropriate corrective action with regard to supervisors as needed. Whether the 15% cap is applied will be left to the discretion of the court as to whether the employer took reasonable steps to achieve compliance.

• 30% Cap on Penalties For Employers Who Take Steps For Compliance After Receipt Of PAGA Notice: Once a PAGA Notice is received by an employer AB 2288 provides that if an employer “has taken all reasonable steps to prospectively be in compliance with all provisions identified in the notice,” then the available penalties are capped at 30%. Like the application of the 15% cap, this is a test to be applied by the Court considering the totality of the circumstances.

• Cap On Penalties For Wage Statement Violations That Do Not Cause Injury: The new changes provide that if a wage statement violation under Labor Code § 226 does not cause harm to the plaintiff, then the available penalty is capped at $25. Such violations would include misspellings of the employer’s name on a paystub or similar errors that did not injure the employee.  Additionally, AB 2288 confirms that penalties for Labor Code § 226 are the only penalties available for wage statement violations, preventing claims by plaintiffs that they can double-dip on wage statement claims and seek penalties under Labor Code § 226.3 as well.

5. When can the higher $200 penalty be awarded under the new PAGA laws?
The new changes limit the scope of when the $200 penalty for a “subsequent violation” can be awarded. (Previously, only $100 penalties are recoverable for the first violation and then the penalties increase to $200 per violation for all violations thereafter.) Under AB 2288 there are now only two situations when the higher penalty may be considered:

• A $200 penalty for a subsequent violation is available if there has been a court or agency determination within the last five years that the employer had an unlawful policy or practice that caused the violation; or
  
• If a court determines that the employer’s conduct which caused the violation was malicious, fraudulent, or oppressive. (This is the same standard for imposition of punitive damages in California.) Ultimately, the bill does not create any increased or higher penalties under PAGA than which previously existed. And, the threshold to attain the higher $200 penalty is more precisely defined and ultimately harder for plaintiffs to attain.

Ultimately, the bill does not create any increased or higher penalties under PAGA than which previously existed. And, the threshold to attain the higher $200 penalty is more precisely defined and ultimately harder for plaintiffs to attain.

6. What are the caps on penalties for isolated errors and how do the changes prevent derivative penalties under PAGA?

Another cause of the large possible exposure to employers under PAGA was the penalties for derivative Labor Code violations—meaning plaintiffs would seek a penalty for underpayment of wages, and also penalties for derivative violations of other Labor Code provisions such as § 203 (failure to pay the underpayment at time of termination), § 204 (failure to pay the underpayment in the pay period it was earned), § 226 (failure to list the underpayment on the wage statement for the pay period), etc. As a result, a single violation could result in numerous penalties. The bill makes clear that penalties cannot be awarded for derivative claims. Furthermore, where violations occur for less than 30 days, or four consecutive pay periods, the maximum penalty available for each violation is $50.

7. Does the new law codify the Court’s discretion in these cases?

Yes. It has long been accepted that the Court has discretion, based on the facts and circumstances of the case, to reduce the penalties to be imposed on employers to avoid an award that is unfair under the circumstances. The Court’s discretion to adjust the amount of penalties awarded based on the circumstances of the case has been codified in the new law.

8. What relief do weekly pay period employers get under the new laws?

PAGA imposes penalties on a pay period basis. This meant that if an employer operated on a weekly pay period, they were exposed to twice as many potential penalties than if they operated on a biweekly pay period. The bill addresses this unfairness and provides that any penalty amount for an employer operating on a weekly pay period is reduced by half.

9. How have recent changes impacted the distribution of penalties awarded to employees?

Under PAGA, any award under PAGA was distributed 75% to the Labor & Workforce Development Agency (LWDA) and 25% to the affected employees. The new law increases the employees’ share of penalties to 35%.

10. Do the new changes to the law allow employers to cure violations and avoid any of the penalties?

Previously under PAGA, an employer had very limited rights to cure or fix any alleged Labor Code violations. The new law revises PAGA’s cure provision, allowing more violations to be cured, and establishes new tools for employers to use to cure any violations.

SB 92 now allows violations of Labor Code § 226 (wage statements – previously, only certain parts of wage statement violations could be cured), § 226.7 (failure to pay meal/rest period premiums), § 510 (overtime), and § 2802 (expense reimbursement) to be cured. This change includes some of the most frequently alleged violations under PAGA.

11. What are the new rights for small employers seeking to cure violations under the revised PAGA laws?

Small employers (under 100 employees during the relevant period), can notify the LWDA that they would like to cure the alleged violations. The agency will then arrange a settlement conference with the plaintiff and employer in an attempt to reach an early resolution for the matter, like the conferences held by the Labor Commissioner for individual wage claims.

12. What options are available for large employers who wish to cure violations under the revised PAGA laws?

Employers with more than 100 employees may file a request for a stay and Early Neutral Evaluation with the court, which requires the court stay all discovery and responsive pleading deadlines. The neutral will then 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. An employer may also file a motion for the court to approve a cure, even if the plaintiffs or neutral do not agree a cure has been sufficient.

13. What additional remedy is now available under PAGA?

Previously, the only available remedies under PAGA were civil penalties and attorneys’ fees. The bills add injunctive relief as an available remedy. This permits PAGA plaintiffs to seek injunctive relief in any circumstances where the Labor & Workforce Development Agency could seek injunctive relief.

14. When do the new PAGA laws take effect?

Despite being signed on July 1, 2024, the new law specifies that it is effective as of June 19, 2024, even though it was not signed until after that date, and applies to any proceedings (or Labor & Workforce Development Agency notices) initiated on or after that date. 

15. How can employers proactively protect themselves from PAGA claims?

Employers should be aware of their ability to reduce penalties and also take proactive steps to avoid PAGA claims in the first place. This includes conducting payroll and wage and hour audits, distributing policies identifying correct wage and hour rights, and training supervisors.

16. Where can I get more information about these changes or seek legal advice?

If you have any questions about the new changes to the PAGA laws, or what steps can be taken to protect your organization from such claims, contact Scott Liner at [email protected] or call us at 310-545-7700 to set up a consultation.

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_{Please note that this article is for informational purposes only and should not be considered legal or tax advice and does constitute an attorney-client relationship. It is recommended to consult with an attorney directly for specific guidance pertaining to your business and its practices.}