On July 1, 2024, California Governor Gavin Newsom signed Assembly Bill 2288 and Senate Bill 92 significantly reforming California’s Private Attorney General Act (“PAGA”).
Twenty years ago, PAGA was enacted as a mechanism to allow California employees to collect penalties for Labor Code violations on behalf of the state. Since then, the statute has been weaponized by the plaintiffs’ bar, forcing employers to stare down an ever-increasing number of PAGA lawsuits in the decades since its enactment. Fed up with the notorious abuses of the statute, various industry groups proposed initiatives to repeal PAGA and implement a new set of Labor Code enforcement mechanisms which were set to appear on the November 2024 ballot.
To avoid a “battle of the ballot” this Fall, labor and business groups reached agreement with Governor Newsom on a collection of PAGA reforms that are the most significant changes to PAGA in its twenty-year history. The amendments provide some long overdue relief to California employers who have struggled under PAGA’s substantial weight for the last two decades. Below is what employers need to know about these important legislative changes, which (with few exceptions) will apply only to PAGA actions filed on or after June 19, 2024, as well as PAGA notices submitted to the Labor Workforce Development Agency (“LWDA”) on or after that date.
A Higher Burden for Plaintiffs to Establish Standing
One of the most significant developments is that SB 92 requires plaintiffs to actually experience each alleged Labor Code violation they are seeking to pursue on a representative basis to meet the definition of an “aggrieved employee” within the meaning of PAGA. This nullifies prior case law from the Court of Appeal in Huff v. Securitas Security USA Services, Inc., which gave plaintiffs standing to bring PAGA claims for any Labor Code violations, as long as they could show that they suffered at least one Labor Code violation.
SB 92 raises what was previously perceived by California employers as an unreasonably low burden. The amendment represents a return to a more traditional approach to standing and provides more practical litigation strategies for employers. For example, following this amendment, employers will now be able to advocate for the adjudication of plaintiff’s claims first, so that the scope of the representative group may be limited from the outset. Importantly, SB 92 will not apply to PAGA actions brought by nonprofit legal aid associations that have been involved in PAGA litigation for at least 5 years.
In addition to the “personal experience” requirement of SB 92, AB 2288 makes clear that the one-year PAGA statute of limitations applies to the Labor Code violation that the plaintiff must have actually experienced to have standing to bring the PAGA action in the first place. This has the effect of abrogating the Court of Appeal’s ruling in Johnson v. Maxim Healthcare Services, Inc., that essentially allowed plaintiffs to argue that there was no time limit on a plaintiff’s individual PAGA claims.
Manageability of PAGA Claims
AB 2288 does away with the California Supreme Court’s ruling in Estrada v. Royal Carpet Mills, Inc., holding that courts lacked the inherent authority to strike PAGA claims on manageability grounds. With this amendment, a court “may 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.”
Early Evaluation and Opportunity to Cure
Before these amendments, PAGA provided few avenues for employers to cure violations to avoid litigation and penalties. The PAGA amendments include new procedures for employers to address and cure alleged Labor Code violations after an employer is served with a PAGA action complaint.
- Early Evaluation Conference with a Neutral Evaluator: Under SB 92, employers are now able to request an early evaluation conference with a neutral evaluator upon being served with a summons and complaint asserting a claim under PAGA. The request can be made before, or simultaneous with, their responsive pleading or other initial appearance in the action. In addition, the employer may request a stay of court proceedings, and unless there is good cause, the stay must be granted. The purpose of the conference is to evaluate the strengths and weaknesses of plaintiff’s claims, to determine whether the alleged violations occurred, and if so, if they can or have been cured by the employer, and to assess the possibility of an early resolution.
- Additional Opportunities for Employers with Less than 100 Employees: Beginning on October 1, 2024, additional options will become available to employers with less than 100 employees. Specifically, these smaller employers will have 33 days from receipt of the notice of violation to submit a confidential proposal to cure one or more of the alleged violations to the LWDA. The LWDA may accept the proposed cure, or it may set a conference to discuss the cure. If the LWDA agrees that the proposed cure is sufficient, the PAGA action cannot move forward, unless certain exceptions apply.
Notably, employers can only avail themselves of the notice and cure provisions once in a 12-month period for violations of the same provisions set forth in the notice, regardless of the location of the worksite or if it has been served with a prior notice pursuant to this part alleging the same violation that it did not cure.
Caps on Penalties for Employers that Take “Reasonable Steps” to Comply
Another significant amendment to PAGA under AB 2288 is the reduction of maximum penalties. Prior to the amendments, employers were left to argue a good faith defense and seek an offset of penalties from courts who had discretion with respect to the PAGA penalties assigned.
The amendments limit the potential penalties for employers who take reasonable steps to comply with the Labor Code. “Reasonable steps” may include, but are not limited to, conducting periodic payroll audits, distributing and enforcing lawful written policies, providing training on Labor Code and Wage Order requirements, and disciplining and/or coaching supervisors who violate the law. For those employers who take such reasonable steps, the maximum exposure will now be limited to 15% or 30% of the penalties sought, depending on the specific circ*mstances.
For example, if the employer takes all reasonable steps to comply with the Labor Code before receiving a violation notice or a plaintiff’s request for personnel records, but fails to cure the alleged violations, the available penalties will be capped at 15% of the penalties sought. Further, when an employer can demonstrate that it took reasonable steps to prospectively comply with all provisions identified in the notice, within 60 days after it received the PAGA notice, but failed to cure the alleged violations, the available penalties will be capped at 30% of the penalties sought.
Moreover, penalties may be eliminated altogether if a violation is sufficiently cured. Specifically, employers who can show full cure, as defined by statute, with reasonable steps taken within 60 days of a PAGA notice, will not be required to pay a civil penalty for that violation, and employers who can demonstrate full cure, but not within 60 days of receiving a PAGA notice, will pay a civil penalty of no more than $15 per employee per pay period for the statutory period.
Key Takeaways for Employers
It remains to be seen whether these amendments will truly balance the scales for employers. Although these changes to PAGA will help shift the balance, there will still be considerable risk for employers. Accordingly, employers must ensure compliance with the Labor Code and swiftly remedy issues that arise to avail themselves of the new protections under these amendments. For example, employers should have compliant written policies that are provided to employees and enforced. In addition, employers should conduct regular audits of all payroll and timekeeping practices, particularly policies regarding overtime, meal and rest breaks, and expense reimbursem*nts to be able to reduce potential PAGA penalties should inadvertent compliance issues be revealed.
Further, it is imperative that employers react immediately when they receive PAGA notices to determine whether to utilize PAGA’s newly expanded cure and early evaluation options. Quick action can substantially reduce the potential risk and exposure brought by a PAGA action. Finally, employers should be sure to train their managers and supervisors on Labor Code requirements and wage-and-hour rules, particularly those contained in any applicable industry-specific Wage Orders.
