Executive Summary: On July 1, 2024, the Governor of California signed two pieces of legislation that significantly amended the Private Attorney’s General Act (“PAGA”), a statute which allows an employee, on behalf of the State of California, to sue and recover civil penalties against their employer for violations of the state labor code. Both bills were designed to curb some of the more abusive practices arising from the law’s enforcement. Among the most notable amendments, which will apply only to lawsuits filed on or after June 19, 2024, include: (a) changes to who has standing to sue under PAGA and under what claims; (b) incorporating caps and limits to PAGA’s penalty structure; (c) empowering courts to better address manageability concerns when trying a PAGA case.
Both laws arose from a deal among labor and business groups, the state legislature, and the governor, in exchange for business groups withdrawing a ballot measure, which, if passed, would have repealed the existing PAGA statute.
Below is a summary of the most notable changes to the law:
PAGA Standing Now Limited to Those Who Personally Suffered the Specific Labor Code Violation For Which They Are Seeking to Sue
Previously, court decisions had expanded the PAGA statute to allow employees to sue for labor code violations that they never personally experienced. One decision even held that a plaintiff could have PAGA standing, even if their own claims were barred by the statute of limitations. As a result of the amendments, with limited exception to non-profit legal aid organizations, a PAGA plaintiff must now have personally suffered each Labor Code violation they are seeking to prosecute, and within the relevant one-year statute of limitations period applicable to the PAGA claim.
Limitations on PAGA’s Penalty Structure
By far, the most extensive changes were to the civil penalty structure of the law, designed to mitigate, or in some cases, eliminate liability arising from curable or technical violations of the labor code. These changes include:
- Introducing penalty caps for taking proactive and good faith compliance with the labor code. PAGA penalties are capped at 15% for employers who, prior to receiving a PAGA notice or a request for employment records, the employer took reasonable steps to comply. This may include, without limitation, periodic audits and corrective measures in response to audits, implementation of compliant written policies, training on wage and hour compliance, and/or corrective action with respect to non-compliant employees and managers. Such analysis would look at the totality of the circumstances, including accounting for the employer’s resources and size, and the nature, severity and duration of the alleged violations. The cap is 30% if the employer shows that such steps were taken within 60 days of receiving a PAGA notice. Notwithstanding the above, such civil penalties may still be avoided altogether to the extent PAGA allows a particular labor code violation to be cured.
- Reduced civil penalties for specific labor code violations. Some of the more abusive practices of PAGA litigation, including the imposition for civil penalties, have also been curbed. This includes:
- If the employer does not employ one or more employees at the time of the violation, limiting the civil penalty to $500;
- Reducing civil penalties for wage statement violations from $100 to $25 per aggrieved employee per pay period if the employee could promptly and easily determine from the wage statement alone the information allegedly missing from the wage statement;
- Eliminating civil penalties for derivative wage statement and untimely payment of wages violations, if the violations were neither knowing nor intentional;
- Capping civil penalties for isolated violations to $50 per aggrieved employee per pay period, if the violations did not extend beyond 30 consecutive days or four consecutive pay periods;
- Reducing civil penalties for employers paying weekly by one-half;
- Limiting use of PAGA’s “subsequent violation” civil penalty scheme to instances where either (a) within five years preceding the alleged violation, a court or the California LWDA issued a determination that the employer violated the Labor Code provision in dispute; or (b) the employer’s conduct was malicious, fraudulent, or oppressive.
Empowering Courts to Examine Manageability Concerns at Trial
Per existing PAGA standards, plaintiffs are not required to demonstrate that the class certification requirements are met, or that the case can be manageable at trial, in order to proceed with their PAGA claim. However, because PAGA cases are complex and could involve litigating hundreds of employees’ claims, the amendments now empower courts the discretion to limit the scope of PAGA claims and evidence presented at trial, and also consolidate or coordinate different PAGA actions to the extent they involve overlapping issues.
Early Evaluation and Cure Provisions
The amendments now allow an employer to address alleged labor code violations after being served with a PAGA complaint. This includes requesting an early evaluation conference with a neutral and a stay of the litigation so that the employer may determine what violations it intends to cure, which, if accepted by a neutral evaluator, civil penalties may be reduced. Such cure options are even more advantageous for small employers (i.e. employers with fewer than 100 employees) where the employer may prevent the filing of a PAGA action by curing the alleged violations.