On July 1, 2024, Governor Newsom signed Assembly Bill 2288 and Senate Bill 92 into law, which collectively enact significant reforms to California’s Private Attorneys General Act of 2004, Labor Code Section 2699 et seq. (“PAGA”). Assembly Bill 2288 and Senate Bill 92 (collectively, the “PAGA Reforms”) are the result of a compromise reached between Governor Newsom, state legislators, the labor unions, and the Chamber of Commerce to reform PAGA – the four-letter word that has haunted California employers for years.
Here are three major takeaways from the PAGA Reforms for California employers:
Takeaway #1: The PAGA Reforms Do Not Provide Direct Relief for Employers Already Fighting a PAGA Lawsuit.
- The PAGA Reforms specifically state that the changes to PAGA only apply to civil actions that are based on PAGA Notices that were submitted to the Labor & Workforce Development Agency on or after June 19, 2024. Pending PAGA actions filed before June 19, 2024, are not directly impacted.
- However, the changes enacted by the PAGA Reforms provide employers currently involved in PAGA litigation with arguments regarding the fundamental unfairness of the “old” PAGA, as recognized by the California Legislature in enacting the PAGA Reforms to address such unfairness.
Takeaway #2: The PAGA Reforms Provide Many California Employers with Significant Future Relief.
- Heightened Standing Requirement. To have standing under the “new” PAGA, employees have to show that they personally suffered the specific Labor Code violation(s), for which they seek to recover PAGA penalties for themselves and other employees. Further, they have to show that they experienced such violations during the one-year statute of limitations period set out by Section 340 of the California Code of Civil Procedure.
- This marks a major deviation from prior law, which allowed an employee who was personally affected by a single Labor Code violation to seek penalties for any other Labor Code violations that may have affected other employees, even though the employee never suffered such violations.
- This change further heightens the importance of securing signed arbitration agreements from employees, which contain a valid requirement for employees to arbitrate their individual PAGA claims before proceeding with their non-individual PAGA claims.
- Reduced Penalties. The PAGA Reforms significantly reduce potential PAGA penalties in several ways.
- PAGA penalties for derivative violations are eliminated (g., a meal period violation can no longer result in multiple derivative PAGA penalties for alleged failures to provide accurate wage statements, pay all wages during employment, and pay all wages upon termination.
- PAGA penalties for wage statement violations that do not cause harm are capped at $25.
- PAGA penalties for violations resulting from isolated, nonrecurring events are capped at $50.
- PAGA penalties for proactively compliant employers can be capped at as low as 15% of the maximum PAGA penalty for a specific violation.
- The “new” PAGA no longer penalizes employers for paying employees weekly.
- Expanded Cure Provisions. Employers are able to cure additional types of violations, including any kind of wage statement violation, meal period and rest break premium violations, overtime violations, minimum wage violations, and expense reimbursement violations. Previously, such violations could not be cured.
Takeaway #3: The PAGA Reforms Reward Proactively Compliant Employers.
- Although proactive compliance has always been an important tool for employers seeking to avoid and defend against litigation in California, it has not necessarily deterred PAGA litigation.
- The PAGA Reforms expressly reward such efforts. As noted above, if an employer can demonstrate that they have taken all reasonable steps to be in compliance with the Labor Code provisions, the available penalties will be capped at 15% (if steps were taken prior to receiving a PAGA notice or a request for personnel records) or 30% (if steps were taken after receiving such notice) of the penalties sought.
- The PAGA Reforms highlight at least four aspects of proactive compliance: (1) Implementing legally-compliant policies; (2) conducting regular payroll audits; (3) training employees and supervisors on Labor Code compliance; and (4) taking timely corrective action in response to the issues identified by the employer through audits or otherwise.
While the PAGA Reforms may not include everything California employers would have hoped for from such reforms, they are clearly a step in the right direction. California employers who earnestly seek to comply with the law should breathe a little easier after today.
Please contact any member of Rutan & Tucker’s Employment Department if you have questions about the PAGA Reforms, or their implications.
