2024 Employment Law Update

PAGA Reform – What Employers Need To Know

California’s Private Attorneys’ General Act (“PAGA”) was first enacted in 2004 to allow California employees to collect penalties on behalf of the state for Labor Code violations. It has been widely used since then and has been a source of frustration for employers.

In response to a 2024 ballot initiative to repeal PAGA, the California Legislature, Governor Newsom and business and labor groups negotiated and passed a compromise legislation (SB 92 and AB 2288) that significantly reforms PAGA. The legislation was signed last week and as an emergency legislation went into effect immediately.

The changes apply only to cases submitted to the California Labor & Workforce Development Agency (“LWDA”) on or after June 19, 2024. The key changes are summarized below.

New Requirements To Bring PAGA Claims

Employees must now have personally experienced each of the alleged Labor Code violations for which they seek penalties, with a limited exception for cases filed by certain legal aid organizations. Previously, an employee could bring PAGA claims for numerous Labor Code violations, so long as the employee had suffered a single alleged Labor Code violation.

New Limits on Potential Penalties

Employers that take “all reasonable steps” to comply with the Labor Code before receiving a PAGA notice or request for personnel or payroll files may have their PAGA penalties limited to 15% of the default amount. The limit is 30% of the default amount if the employer takes “all reasonable steps” to comply with the Labor Code within 60 days after receiving a PAGA notice or request for personnel or payroll files.

The statute provides that “all reasonable steps” may include, but are not limited to: periodic payroll audits and responsive action, disseminating lawful written policies, supervisor training on applicable Labor Code and wage order compliance.

Moreover, PAGA’s default civil penalty of $100 for each employee per pay period is now reduced to $50 for each 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.

PAGA’s prior $200 penalty for subsequent violations per employee per pay period is eliminated and replaced with a new $200 penalty that is limited to violations that a court determines are malicious, fraudulent, or oppressive or if a court or agency determines that the policies or practices giving rise to the violations were unlawful in the last five years. Depending on the violations, this will likely reduce the amount of potential PAGA penalties by half or more.

Further, employees are now prohibited from “stacking” penalties for certain Labor Code violations. Previously, employees could stack penalties for certain Labor Code violations to recover multiple penalties for the same primary violation.

New Cure Rights and Options

Most notably, the list of “curable” PAGA violations is expanded to include violations beyond wage statement claims. “Curable” violations now, include meal and rest break claims, minimum wage claims, overtime claims, expense reimbursement claims, and other Labor Code violations. However, there are strict deadlines and requirements for employers wishing to cure alleged PAGA violations.

Also, the new legislation provides two new pathways for early resolution of PAGA claims: one for employers with fewer than 100 employees (“Small Employers”) and one for employers with 100 employees or more (“Large Employers”). Small Employers can submit a confidential proposal to cure and request a settlement conference through the LWDA. Large Employers can file a request for an early evaluation conference and a stay of litigation.

Employers should note that only employers that cured their alleged PAGA violations and have taken “all reasonable steps” to comply with the Labor Code may have their PAGA penalties reduced to zero.

Key Takeaways

Because of these significant changes, California employers should consult with their employment law counsel to better understand how the PAGA reform may affect their businesses. Employers should also implement clear wage and hour policies and practices to prevent and defend against PAGA and other wage and hour claims, and periodically audit those policies and practices. Finally, employers that receive a PAGA notice should move quickly to consult with their attorney to take full advantage of the new cure and early resolution options.

SWSS’ Employment Law Team stands ready to help your company with advice and practical solutions regarding PAGA and your employment practices. For more information, please contact our Employment Law Team.

***The information provided in this article is for informational purposes only and not to provide legal advice. Contact your attorney to obtain advice regarding any particular issue or problem.***